Research Direct - CSC SECURITIES
China LotSynergy (1371.HK)
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Takeaways from Conference Call

China LotSynergy Holdings Limited (China LotSynergy, 1371.HK) is engaged as a technology and operation service provider for lottery systems, terminal equipment and game products for the lottery market in China. The principal businesses cover various lottery products ranging from video lottery, computer ticket game (CTG) and KENO-type lottery to new media lottery.

Industry Background Information

Lottery is authorized and issued by the state, and sold to and purchased by players voluntarily, for the purpose of raising public welfare funds for society and facilitating the development of social community initiatives, with the lottery ticket as a proof to winning under certain regulations. Lottery does not return the principal to players or bear interest. The issuance, sales and drawing of lottery should follow the principles of Open, Fair, Just, Honest and Credible.

Company Background Information

China LotSynergy Holdings Limited (China LotSynergy, 1371.HK) is engaged in the lottery business in China, offering reliable and advanced lottery equipment, system, games and a full range of relevant solutions.

Strong Industrial Growth Rate

According to the Ministry of Finance (MoF), total lottery sales rose 18.3% YOY to RMB 309.33bn. Welfare Lottery increased 16.9% YOY to RMB 176.53bn and Sports Lottery soared 20.2% YOY to RMB 132.8bn.

FY13 Results Review

Revenue was up 22.5% YOY to HK$743.8mn; gross profit rose 12.7% YOY to HK$544.0mn though gross profit margin declined 6.3% YOY to HK$73.1mn. The decline in gross profit margin was due to the increased depreciation cost of VLT third-generation terminals. Reported net profit was up 31.2% YOY to HK$88.6mn. Excluding non-recurring items, core profit was up 18.5% YOY to HK$249.1mn. The improvement in sales and reported net profit is mainly attributable to sustained growth of China lottery market in 2013. Management declared a final dividend of HK$0.24 per share, no interim dividend was declared in interim results. (FY12: HK$0.18).

Financials : Net Cash Position

Short term borrowings were up 30.1% YOY to HK$797.2mn, though cash and cash equivalent was up 17.9% YOY to HK$841.1mn. As such, net cash was HK$43.9mn or HK$0.0058 per share. The financials is fair.

Takeaways from Conference Call

On 14 April 2014, we conducted a conference call with China LotSynergy (1371.HK) for the update of business operation and strategy review.

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