Period

4Q15/FY15

Actual vs. Expectations

4Q15 results came in within expectations with FY15 net profit of RM360.2m coming 5%/1% below house/street’s estimates.

Dividends

A 5.0 sen 4th interim NDPS was declared in 4Q15 (ex date: 15 Jul 2015, payment date: 06 Aug 2015). This brought FY15 NDPS to 21.5 sen, which was lower than our estimate of 25.4 sen as the actual payout was 80.3% vs. our assumption of 90%.

Key highlights

4Q15 net profit fell 26% QoQ to RM77.5m from RM104.6m, despite turnover rising 10% over the quarter. This was mainly due to (i) higher prize payout ratio (EPPR) of 62.0% from 59.2%, and (ii) 3Q14 results, which included a refund of RM18.0m stamp duty paid to the rescission of the share purchase agreement arising from the already aborted listing of Business Trust in Singapore. The poor luck factor resulted in the Malaysian NFO’s PBT contracting by 25%. However, NFO ticket sales rose 5% as average ticket per draw improved to RM21.1m (from RM20.5m), due to the CNY factor, despite a lower number of draw days of 45 (from 46). On the other hand, the higher revenue posted in 4Q15 was mainly driven by stronger sales of 27% at HR Owen (HRO) on launches of new models.

YoY, 4Q15 grew by 12% from RM69.4m, on the back of a 8% hike in revenue, which was mainly backed by better luck of 62.0% (from 64.4%). The improvement in revenue was attributable mainly to a 30% surge in HRO’s revenue on new launches. However, NFO posted lower ticket sales due to lower draw day of 45 (from 46) while average ticket sales per draw fell 3% from RM21.5m. YTD, FY15 net profit rose 11% to RM360.2m as revenue soared by 22%. The rise in bottomline was driven by better luck of 59.6% (from 60.1%) and higher contributions from HRO as it only started consolidating to the group in 2H14.

Outlook

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

However, the implementation of GST will add cost to the operator as it needs to absorb the 6% tax which will crimps its bottomline.

Change to Forecasts

We cut FY16-FY17 estimates by 8.0%/7.7% after adjusting for (i) house-keeping, and (ii) a 6% GST deduction to the topline. We keep all other key assumptions unchanged for now except for GST.

Rating

Maintain OUTPERFORM

Valuation

Post earnings revision, our target price is lowered to RM3.72/DCF share from RM4.25/DCF share previously.

It offers an attractive dividend yield of 7%-8%

Risks to Our Call

(i) Lower-than-expected ticket sales, (ii) Higher-thanexpected EPPR, and (iii) Unexpected losses at BPI/HRO

Source: Kenanga Research - 19 Jun 2015