2QFY21 net profit of RM2.1m came below expectation on higher operating expenses and unexpected non-NFO losses. With continued lockdown, 3QFY21 is likely to be in the red again but ticket sales should recover swiftly once outlets are allowed to reopen. Given the lack of catalyst, we continue to rate the stock MARKET PERFORM with revised target price of RM2.04 which is supported by decent FY22E dividend yield of c.5%.

2QFY21 below expectations. At 9% of house/street’s FY21 estimates, 1HFY21 net profit of RM9.6m came below expectations on losses for non-NFO operation as opposed to our profit assumption, as well as our underestimation of operating expenses. Meanwhile, it did not declare interim dividend for the second consecutive quarter which we believe could likely be due to the lacklustre results. The last time it did not declared interim dividend was in 1QFY17.

Prolonged business closures dampened ticket sales. 2QFY21 net profit declined further to RM2.1m from RM7.5m in the preceding quarter while revenue declined 15% to RM326.5m from RM383.9m in 1QFY21. The lower revenue was largely due to a 15% decline in ticket sales to RM354.9m due to less draw day of 28 in 2QFY21 on MCO 3.0 and FMCO closures from 45 draws in 1QFY21 during MCO 2.0 where only its Sarawak outlets were allowed to operate. However, 2QFY21 ticket sales per draw improved to RM12.7m from RM9.3m previously as in the preceding quarter, only its Sarawak outlets were allowed to open.

But ticket sales improved on per draw basis. YoY, 2QFY21 net income turned profitable from the 2.5 months of MCO 1.0 closure in 2QFY20 with net loss of RM23.7m. 2QFY21 had 28 draws with average ticket sales per draw of RM12.7m as opposed to 6 draws in 2QFY20 with ticket sales of RM9.2m/draw. YTD, 1HFY21 net profit contracted 70% to RM9.6m from RM31.9m as the previous period still enjoyed business in 1QFY20 before the movement control order. 1HFY21 had 73 draws vs. 42 draws last year while average ticket sales declined 38% to RM10.6m from RM17.1m.

3QFY21 likely to be in the red again. As the NFO players are still not allowed to start operations (since June), we expect outlets closure to continue till end of Sep for four months from our previous assumption of three months. As such, the upcoming 3QFY21 is likely to be in the red again after the MCO 1.0-hit loss-making 2QFY20. As such, we cut FY21 draws assumption to 117 from 132 but with unchanged ticket sales of RM12.3m/draw. Together with adjustment on operating expenses and non-NFO operations as mentioned above, we cut FY21E earnings by 39% with NDPS trimmed proportionally based on unchanged 80% payout. However, we keep FY22 forecasts changed.

MARKET PERFORM maintained on lack of fresh catalyst. While 2021 is a miss, recovery of ticket sales is expected in 2022 once business reopens. However, we believe near-term catalysts are already mostly priced in at the moment. Thus, the stock is maintained at MARKET PERFORM with a lower target price of RM2.04/DCF share post earnings revision from RM2.10/DCF share. Our call is still supported by a decent yield of >5% for FY22. Upside risk to our recommendation is a quicker-than-expected recovery of ticket sales.

Source: Kenanga Research - 27 Aug 2021