Period  1Q14

Actual vs. Expectations The 1Q14 results came in within expectations with net profit of RM82.5m which accounted for 26% of both our full-year FY14 forecasts as well as that of the consensus.

Dividends  A first interim NDPS of 5 sen was declared, (exdate: 9 Jun, payment date: 27 Jun) which is the same as 4Q13 and 1Q13.

Key highlights  With revenue only rising 7% to RM792.5m from RM741.2m, 1Q14 net profit surged 47% sequentially to RM82.5m from RM56.1m, thanks largely to better luck factor of 62.8% from 67.0% estimated prize payout ratio (EPPR) coupled with higher NFO ticket sales by 7%. The higher NFO ticket sales was driven by improved average ticket by 5% to RM18.7m/draw on CNY seasonality factor with one draw extra in 1Q14 to 46 from 45 previously.

 On a YoY comparison, 1Q14 net profit declined by 39% while revenue contracted 14% over the year. This was because the 1Q13 results included MPHB Capital Bhd’s (MPHBCAP, NOT RATED) earnings. Stripping out MPHBCAP’s earnings, 1Q14 net profit would have declined 24% while revenue would have slid 6% from 1Q13. This was due to the better luck factor in 1Q13 at 60.3% vs. 62.8% in 1Q14 while average NFO ticket sales fell 6% from RM20.0m/draw to RM18.7m/draw as number of draw days remained unchanged at 46.

Outlook  Luck factor remains the earnings deciding factor as the prize payout ratio is not consistent from quarter to quarter.

Change to Forecasts No changes to our FY14-FY15 forecast.

Rating Maintain OUTPERFORM

Valuation  Maintain price target of RM3.59/DCF share.

Risks to Our Call A rise in gaming tax by the government

 Weaker-than-expected ticket sales and a higherthan-expected EPPR

Source: Kenanga