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NFOs on the road to recovery

Maintain BUY calls and TPs on BST and MAG

Despite the number of new COVID-19 cases in Malaysia remaining relatively high by historical standards, albeit falling, we are positively surprised that jackpot sales are recovering quickly. With history as our guide, we gather that MAG and BST NFO sales will recover to c.80% of pre-COVID-19 levels very soon and encourage them to resume paying dividends. We conservatively maintain our EPS estimates and TPs for MAG and BST at MYR2.44 and MYR2.41 respectively.

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NFO outlets have reopened for a month now

It has been a month since NFO outlets were allowed to reopen on 14 Sep 2021. We understand that most of the c.1,700 NFO outlets across Malaysia have reopened. Thus, we take stock and examine how jackpot sales are faring. Although they account for c.20% of industry sales (Fig. 1), jackpot sales can be reliably estimated draw by draw due to their ‘snowballing’ feature. While Classic 4D accounts for c.75% of industry sales, their sales cannot be reliably estimated draw by draw as there is no ‘snowballing’
feature.

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Jackpot sales point to post-MCO 1.0 like recovery

Though the number of new COVID-19 cases in Malaysia has fallen sharply, they are still high by historical standards (Fig. 2). Yet, our estimation of jackpot sales post-reopening on 14 Sep 2021 (post-FMCO) is similar to that post-reopening on 17 Jun 2020 (post-MCO 1.0) (Fig. 3). Recall that post- MCO 1.0, MAG and BST NFO sales (Classic 4D, jackpot and other games) recovered quickly to c.80% of pre-COVID-19 levels (Fig. 4). Thus, we gather that both MAG and BST NFO sales will again recover quickly to c.80% of
pre-COVID-19 levels in 4Q21 and beyond.

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Maintaining EPS estimates for now

Recall that the NFO outlets reopened 1.5months earlier than we expected (MKE forecast: Nov 2021) and our current FY BST and MAG EPS estimates could have been raised by 35-40% due to this. Yet, we left our EPS estimates unchanged lest new COVID-19 cases climb and force NFO outlets to shut again. We conservatively leave our EPS estimates unchanged. In any case, any positive earnings revision for this current FY is unlikely to be repeated next FY onwards as we already assume that all NFO outlets will operate on full year basis going forward.