Multi-Purpose Holdings (MPHB) posted 1QFY13 core earnings of MYR128.1m, beating both our and consensus estimates due to a lower-than-expected prize payout ratio. No change to our earnings estimates for now pending the listing of its insurance and property arms via MPHB Capital. Maintain BUY, with our SOP-based FV nudged down to MYR3.89 after the stock’s exclusion date for its rights shares yesterday.

Encouraging start. MPHB’s 1QFY13 revenue rose 1.6% y-o-y to MYR920.2m, fuelled by its gaming and financial services divisions, which expanded 0.8% and 13.8% respectively. EBIT, meanwhile, surged 43.6% y-o-y to MYR203.1m, led by a lower prize payout ratio, which boosted the group’s profitability. We estimate that its gross payout ratio improved from 68.1% in 1QFY12 to 62.3% in 1QFY13. All in, MPHB’s 1QFY13 core earnings soared 69.4% y-o-y to MYR128.1m, making up 35.2% and 29.5% of our and consensus estimates respectively, further lifted by a lower effective tax rate. On a sequential basis, the improvements across the board were attributed to seasonality.

Knee-jerk reaction in share price as anticipated. The stock closed lower at MYR3.51 yesterday vis-à-vis last Thursday’s MYR3.89 closing price after the stock went ex-rights in tandem with the subscription timeline for MPHB Capital shares. This is in line with the range of MYR3.31-MYR3.71 we estimated in our last update on the company.

Maintain BUY. Excludingthe proposed capital repayment of MYR0.49/share which will be distributed within six months from the official listing of MPHB Capital on 25 June, MPHB is currently trading at P/Es of 13.3x for FY14 and 13.0x for FY15. Assuming an 80% payout ratio post-spinoff exercise, this also implies a dividend yield of 5.8%-6.0% pa, which we find alluring to risk-averse and yield-seeking investors. Removing the RNAV of its land and insurance business while simultaneously adding back the proposed MYR0.49/share capital repayment as well as tweaking up our WACC assumptions to better reflect the higher beta nature of the upcoming pure gaming play, our SOP-based FV now stands at MYR3.89. Given the decent upside of over 10.9%, we are maintaining our BUY call.

Source: RHB