• NFOs have absorbed the 6% GST without cutting prize payouts, causing EPS to be negatively impacted by e.10%.
• Industry lotto sales recorded in the two weeks after 1 Apr 2015 eased 4% compared to the two weeks before.
• We had anticipated the above. Maintain earnings estimates, HOLD calls and TPs on BST and MAG. Still NEUTRAL.

What’s New

Since the 6% GST was implemented on 1 Apr 2015, we visited three NFO outlets, one from each of the national NFOs. Overall, our findings were very much within expectations as: (i) the NFOs are absorbing the 6% GST as anticipated; (ii) no remedial actions have been taken to neutralize the 6% GST as expected; and (iii) we can expect downward pressure on NFO sales going forward.

While lotto games account for only ~15% of industry NFO sales, their sales can be accurately estimated. We estimate industry lotto sales in the two weeks after 1 Apr 2015 eased 4% compared to the two weeks before. Our random opinion poll, conducted to give us an idea on where classic 4D (~80% of industry NFO sales) may go, reveal that no punter will increase their bet size anytime soon.

What’s Our View

Lotto sales so far suggest total NFO sales (classic 4D, lotto, etc.) may ease by a wider 4% in 2015 than our estimate of -2%, but we note BST and MAG‟s EPS are not very sensitive to sales. We estimate every 1% decrease in sales translates into only 1% easing in their EPS. Therefore, we maintain our estimates, HOLD calls and TPs on BST (TP: MYR3.18) and MAG (TP: MYR2.65) for now.

We continue to foresee three themes: (i) lower revenues; (ii) lower earnings; and (iii) lower dividends. For BST, we expect DPS to fall from 26.5sen in FY4/14 to 21.5sen in FY4/15 and to 20sen in FY4/16 (first full year of GST) and for MAG, from 20sen in FY12/14 to 15sen in FY12/15 (9M GST impact). The only saving grace is the lower dividends still translate into decent yields of >5% pa.

Source: Maybank Research - 16 Apr 2015