Period  4Q14/FY14

Actual vs. Expectations FY14 core net profit of RM358.8m is 6% off our estimates, attributed to (i) poorer luck factor in 4Q14 of 64.4% from 58.5% in 3Q14; (ii) higher interest expenses of RM41.6m vs. our assumption of RM32.2m as Berjaya Philippines Inc (BPI) took a loan to acquire HR Owen (HRO); and (iii) effective tax rate of 32.4% vs. our assumption of 30.0%.

 However, the reported earnings are still within market expectations which came in 4% below consensus.

Dividends  A 7.0 sen 4th interim NDPS was declared in 4Q14 (entitlement date: 18 Jul 2014, payment date: 08 Aug 2014), totalling FY14 NDPS to 26.5 sen which is higher than our estimates of 25.4 sen.

Key highlights  4Q14 core earnings contracted by 15% QoQ to RM70.6m from RM83.3m, no thanks to higher than normalised of EPPR. 4Q14 ticket sales rose 4% on higher draw days of 46 vs. 45 with average ticket sales rose 2% to RM21.5m/draw from RM21.1m previously. HRO reported strong 4Q14 due to seasonality as operating profit improved to RM12.6m from RM2.3m with revenue rising 28% sequentially.

 As earnings of HRO only consolidated in 2H14, the YoY comparison may not be reflective enough. For core NFO business, its operating profit declined 24% to RM104.6m in 4Q14 from RM137.4m a year ago, due to higher EPPR of 64.4% vs. 61.2% while ticket sales slid slightly by 1% despite having one extra draw day. YTD, FY14 NFO’s revenue fell 2% to RM3.50b while operating profit dipped 8% to RM565.9m. The weaker NFO earnings were partly due to higher EPPR of 60.1% vs. 59.2% in FY13.

Outlook  The forward NFO ticket sales remain resilient with c.3% annual growth. Unlike MAGNUM which faces volatile luck factor, BJTOTO’s prize payout ratio is less volatile over the quarters given its wider spread of lotto games and 4D games.

Change to Forecasts We fine-tune FY15-FY16 estimates after taking into consideration of (i) cash-flow adjustment from full-year FY14A; (ii) a lower base of FY14A average NFO ticket sales of RM21.3m/draw from previous FY14E of RM21.9m/draw but 3% ticket sales annual growth for FY15-FY16 remained unchanged. As such, we trim FY15-FY16 estimates by 6% each.

Rating Maintain OUTPERFORM

Valuation  Post earnings revision and a new valuation year base of FY15, our new price target is now reduced to RM4.25/DCF from RM4.31/DCF share previously.

Risks to Our Call  (i) Lower-than-expected ticket sales

 (ii) Higher-than-expected EPPR.

 (iii) Unexpected losses at BPI/HRO

Source: Kenanga