1QFY21 net profit which plunged 81% sequentially to RM7.5m came in weaker than expected as ticket sales declined 27%, affected heavily by the outlets closure due to MCO 2.0. However, NFO outlets are allowed to operate during the current on-going MCO 3.0 which indicates that ticket sales should have bottomed. As such, we still expect ticket sales to recover in 2HFY21 before a “business as usual” environment emerges in FY22. Keep MP with a lower TP of RM2.05 as near-term catalysts are mostly priced in.

1QFY21 weaker than expected. At only 4% of both house/street’s FY21 estimates, 1QFY21 core profit of RM7.5m came below expectations solely due to weaker-than-expected ticket sales during MCO 2.0 with its outlets in all states except Sarawak closed from 13 Jan to 14 Feb with 18 draws affected. As a result, average ticket sales per draw plunged 32% QoQ to RM9.3m in 1QFY21 as opposed to our FY21 assumptions of RM14.4m. Meanwhile, it did not declare interim dividend for the first time since 1QFY17 which we believe could likely be due to the lacklustre results.

MCO 2.0 closures hit ticket sales. 1QFY21 core profit plunged 81% sequentially to RM7.5m from RM39.8m in 4QFY20 as revenue tumbled 27% to RM383.9m. Despite having higher draws of 45 from 42, ticket sales contracted 27% to RM417.2m from RM573.0m as the MCO 2.0 outlets closure impacted 18 draws. This brought average ticket sales per draw down substantially to RM9.3m, which was slightly higher than the RM9.2m recorded in MCO 1.0-affected 2QFY20. Meanwhile, 1QFY21 results were also affected by higher prize payout which we estimated (EPPR) at 68.4% from 67.2%. Note that 4QFY20 core profit of RM39.8m was adjusted for a RM63.9m settlement with IRB plus RM16.7m penalty.

Ticket sales per draw near record low level. Similarly, 1QFY21 core profit plummeted by 86% YoY from RM55.6m as total ticket sales contracted 37% from RM662.5m. This is in spite of having nine extra draws from 36 in 1QFY20 as six draws were cancelled nationwide from the start of MCO 1.0 on 18 Mar 2020. At per draw basis, ticket sales declined 50% to RM9.3m from RM18.4m in 1QFY20. In addition, the poorer set of results was also partly attributable to unfavourable luck factor of 68.4% from 64.5%.

To recover from 1QFY21. Ticket sales should have already bottomed post MCO 2.0 as the NFO operators are allowed to operate with SOP restriction even during the current on-going MCO 3.0. We understand that ticket sales shrunk to c.15% of pre-COVID-19 levels in MCO 2.0 but have slowly recovered to 80%-85% currently. As such, we expect a better 2QFY21, possibly a recovery to 2HFY20 levels. Post 1QFY21 results, we shave FY21-FY22 estimates by 27%/7% as we cut ticket sales per draw by 10%/7% to RM13.0m/RM15.8m from RM14.4m/RM17.0m to reflect the MCO 2.0 impact which delays ticket sales recovery. Meanwhile, NDPS are also cut proportionally based on unchanged 80% earnings pay-out.

In the price already; MARKET PERFORM maintained. While we still expect ticket sales to recover in 2HFY21 before a “business as usual” environment emerges in FY22, we believe near-term catalysts are already mostly priced in at the moment. As such, we keep our MARKET PERFORM rating with a lower target price of RM2.05/DCF share post earnings revision from RM2.15/DCF share. Our call is still supported by a decent yield of c.5%. Risk to our recommendation is a quicker-than- expected recovery of ticket sales.

Source: Kenanga Research - 20 May 2021