Period  1Q15

Actual vs. Expectations  Although 1Q15 net profit of RM78.3m is only making up 21%/20% of house/street’s FY15 full-year estimates, we consider the result to be broadly in line as we expect strong quarters ahead as more special draw days expected in the coming quarters.

Dividends  A 5.5 sen 1st interim NDPS was declared in 1Q15 (ex date: 07 Oct, payment date: 16 Oct), implying payout ratio of 94.6%, compared to 7.0 sen and 4.0 sen paid in 4Q14 and 1Q14 respectively.

Key highlights  The 1Q15 net profit rose 11% QoQ to RM78.3m from RM70.6m in the preceding quarter despite an 8% decline in topline. This was mainly due to a normalised luck factor of 59.9% from 64.4% previously. The decline in revenue was caused by the abovementioned lesser draw day of 42 from 46 while the average ticket sales per draw also dropped to RM20.4m from RM21.5m due to CNY factor in 4Q14. Meanwhile, HRO reported lower operating profit of RM7.9m from RM12.6m although topline was flattish.

 Although revenue rising 40%, the 1Q15 earnings which plunged 24% YoY from RM103.0m in 1Q14. The better results in the previous corresponding quarter were mainly due to (i) better luck factor of 57.7%, and (ii) higher draw day of 44. The higher revenue reported in 1Q15 was attributable to the consolidation of HRO results which started in 3Q14.

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 While 1Q15 results were weaker than expected, we are keeping our estimates for now as we believe BJTOTO would still have its usual 20 special draws a year to drive ticket sales for the remaining quarters in FY15.

Rating Maintain OUTPERFORM

Valuation  BJTOTO has underperformed the FBMKLCI this year where its share price has contracted 5.3% YTD vs. the 30-stock index decline of 0.9%.

 Given its defensive earnings quality and attractive yield of 6%-7%, income seeking investor would continue to hold the stock.

 Our price target is maintained at RM4.25/DCF share.

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

 (ii) Higher-than-expected EPPR.

 (iii) Unexpected losses at BPI/HRO

Source: Kenanga