Multi-Purpose - Weak ticket sales Hold

- We are downgrading our recommendation on MultiPurpose Holdings Bhd (MPHB) from BUY to HOLD, with a higher fair value of RM4.00/share. We have raised the terminal growth rate in our DCF calculation for MPHB’s NFO operations from 2.6% to 4%. 

- The proposed demerger exercise of MPHB’s non-gaming (property and insurance assets) is scheduled to be completed by 1HFY13.

- Stripping out the non-gaming assets, which would be listed eventually, we estimate the implied value of MPHB’s NFO operations at an FY13F PE of 14x. 

- This is on par with Berjaya Sports Toto, which is currently trading at FYE4/13F PE of 14x (before listing of the business trust in Singapore).

- MPHB’s 1HFY12 core net profit (excluding gains on fair value adjustment and sale of shares in associate) was within our expectations, but below consensus estimates.

- Pre-tax profit of MPHB’s NFO, stockbroking and insurance divisions fell 28% YoY to RM194.4mil in 1HFY12 due  to increases in NFO prize payouts and net insurance claims.

- Pre-tax profit of the NFO division declined 25.9% YoY to RM167.6mil in 1HFY12. Prize payout rose from an estimated 65.1% in 1HFY11 to 68.1% in 1HFY12. Ticket sales were tepid in 1HFY12 due to weak consumer spending and competition from Berjaya Sports Toto’s jackpot games. 

- Gross NFO sales shrank 2.9% from RM20.1mil/draw in 1HFY11 to RM19.5mil/draw in 1HFY12. Number of draws amounted to 89 in 1HFY12, which was the same as 1HFY11.

- For FY13F, we have forecast a low ticket sales growth per draw of 2% in FY13F (FY12F: 2%) to account for competition from Pan Malaysian Pools’ 6D Jackpot, which was launched in July 2012. 

- On a QoQ basis, pre-tax profit of the NFO division was weak in 2QFY12 due to higher prize payouts and a fall in ticket sales/draw. However, pre-tax profit of the insurance division improved from RM2.3mil in 1QFY12 to RM20.6mil in 2QFY12 on the back of a decline in insurance claims.

- Ticket sales per draw shrank 7.6% from RM20.3mil in 1QFY12 to RM18.7mil in 2QFY12 while prize payout climbed from 65.6% to 69.4%.    

Source: AmeSecurities