Period  3Q14/9M14

Actual vs. Expectations At 61%/64% of house/street’s full-year FY14 estimates, the 9M14 net profit of RM196.0m came in below expectations.

 This negative variance was due to: (i) lower average NFO ticket sales per draw of RM17.6m in 9M14 vs. our FY14 assumption of RM18.8m, (ii) poorer luck factor of 65.0% in 9M14 vs. our FY14 assumption of 63.0%, and (iii) fair value loss of quoted investments for the investment holding & other division.

Dividends  A 3rd interim NDPS of 5 sen was declared, (ex-date: 10 Dec, payment date: 26 Dec) which is the same as 2Q14 and 3Q13. This brings YTD 9M14 NDPS to 15 sen.

Key highlights  The 3Q14 net profit plunged 33% QoQ to RM45.4m; the lowest quarterly earnings since 1Q09, which was due to the three reasons mentioned above. In fact, 3Q14 ticket sales dipped 4% to RM728.0m due to lower average ticket sales per draw of RM16.9m from RM17.2m coupled with lesser draw days of 43 vs. 44 previously. The estimated prize payout ratio (EPPR) increased to 66.4% from 65.7% in 2Q14.

 YoY, 3Q14 net profit fell 30% from RM64.8m on the back of 5% decline in topline. The sharp drop in bottomline was mainly due to a much lower EPPR of 62.9% in 3Q13 which saw gaming earnings contracting 27% over the year. Both quarters had same draw days of 43 but the average ticket sale per draw was higher last year at RM17.7m as opposed to RM16.9m in 3Q14.

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

Change to Forecasts We trim FY14/FY15 estimates by 19%/8% on the back of: (i) -1% in FY14 NFO ticket sales, average ticket sales per draw of RM18.1m from RM18.8m and +2% in FY15 NFO ticket sales, average ticket sales per draw of RM18.4m from RM19.2m, and (ii) increasing EPPR assumption to 65% in FY14 from 63% but maintain FY15 assumption at 63%.

Rating Maintain OUTPERFORM

Valuation  Post earnings revision, new price target is now reduced to RM3.31/DCF share from RM3.59/DCF share previously.

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

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

Source: Kenanga