Period

3Q15/9M15

Actual vs. Expectations

3Q15 results came below expectations. 9M15 net profit of RM188.6m accounted for 70%/73% of house/street’s full-year FY15 estimates.

The main discrepancy was we were too bullish in our NFO ticket sales assumption. Note that NFO revenue has been adjusted to off-set the GST in 3Q15, which was previously classified as other expenses in 2Q15. Even after the adjustment, our assumption was still on the high side.

Dividends

A 3rd interim NDPS of 2.5 sen was declared in 3Q15 (ex-date: 07 Dec; payment date: 28 Dec), totalling 9M15 NDP to 12.5 sen which is lower than the 15.0 sen paid in 9M14.

Key highlights

3Q15 net profit plunged 37% QoQ to RM38.0m, despite revenue inching up 2%, due mainly to bad luck factor as estimated prize payout ratio (EPPR) deteriorated significantly to 69.9% from 64.1%. In addition, 3Q15 saw a full-quarter impact of the absorption of GST as opposed to 2- month impact in 2Q15. The 2% improvement in revenue was led by higher ticket sales by 2% as average ticket sales per draw improved to RM16.3m from RM16.0m previously while the number of draws remained at 44.

YoY, 3Q15 net profit plummeted 44% from RM68.0m in 3Q14, which was due to unfavourable luck factor of 69.9% from 66.4% and there was also no GST last year. With GST, 3Q15 revenue could have risen 5%, instead of 1% contraction, due partly to higher draw days of 44 vs. 43. The average ticket sales per draw fell to RM16.3m from RM16.9m. YTD, 9M15 net profit dipped 4% to RM188.6m from RM196.0m as revenue slid 3%, which was mainly attributable to the 6% GST implemented in Apr 2015 while luck factor was about the same at 64.9% from 64.8%.

Outlook

While the luck factor remaining the deciding factor as the prize payout ratio is inconsistent from quarter to quarter, the implementation of GST will add cost to the operator as it needs to absorb the 6% tax which crimps its bottomline.

Change to Forecasts

We trim FY15E/FY16E/FY17E by 3%/4%/4% on after: (i) lowering NFO sales/draw assumption by 4%/2%/2% to RM16.5m/RM16.8m/RM17.1m, and (ii) rising tax assumption to 29% from 24% for FY15E but maintain at 24% for FY16E and FY17E.

Rating

Maintain OUTPERFORM

Valuation

Our price target is adjusted downwards to RM2.90/DCF share from RM2.93/DCF share.

Risks to Our Call

A rise in gaming tax.

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

Source: Kenanga Research - 23 Nov 2015