Period

2Q15/1H15

Actual vs. Expectations

2Q15 results came within expectations with 1H15 net profit of RM150.6m making up 56%/58% of house/street’s full-year estimates. We expect a weaker 2H15 given the absorption of GST expenses.

Dividends

A 2nd interim NDPS of 5.0 sen was declared in 2Q15 (ex-date: 7 Sep; payment date: 25 Sep), which is the same as 1Q15 and 2Q14.

Key highlights

2Q15 net profit plunged 34% QoQ to RM59.8m while revenue contracted 17% to RM657.3m in 1Q15. The decline in earnings was not unexpected given: (i) the absorption of GST from Apr 2015 onwards, (ii) 1Q15 was a seasonally strong quarter on Chinese New Year effect. This brought total NFO ticket to RM714.1m in 2Q15, a 17% QoQ decline. With 44 draws vs. 45 draws in 1Q15, average ticket sales per draw fell 15% to RM16.2m in 2Q15 from RM19.1m previously. Meanwhile, estimated prize payout ratio (EPPR) deteriorated to 64.3% from 61.5% but still below our assumption of 65%.

YoY, 2Q15 net earnings declined 12% from RM68.0m while revenue dipped 6%, mainly due to the GST expenses as mentioned above. There was a slight improvement in luck factor from 65.7%. NFO ticket sales fell 6% from RM756.8m. With the same draw day of 44, average ticket sales per draw reduced 6% to RM17.2m. YTD, 1H15 net profit was flattish at RM150.6m despite revenue dipping 3% over the year. This was mainly attributable to better luck factor of 62.8% in 1H15 from 64.2% in 1H14. The decline in topline again was due to the GST expenses which saw total ticket sales dropping 3% to RM1.57b from RM1.62b in 1H14 with average ticket sales per draw falling to RM17.7m from RM18.0m previously.

Outlook

While the luck factor remains the deciding factor as the prize payout ratio is not consistent from quarter to quarter, the implementation of GST will add cost to the operator as it needs to absorb the 6% tax which will crimp its bottomline.

Change to Forecasts

No changes to our FY15-FY17 estimates.

Rating

Maintain OUTPERFORM

Valuation

Our price target maintains at RM2.93/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 Research - 19 Aug 2015