- We are keeping our HOLD recommendation on Magnum Bhd with an unchanged fair value of RM3.70/share. Our fair value for Magnum is based on the DCF (discounted cash flows) of the lottery operations.

- With the completion of the listing of MPHB Capital, Magnum is on track towards paying more dividends in FY14F. We estimate Magnum’s gross DPS at 21 sen for FY14F, which translates into a decent yield of 6.3%.

- Magnum declared a second interim gross DPS of 5 sen in 2QFY13. For FY13F, we have assumed a gross DPS of 20 sen, which is a yield of 6.0%.

- Magnum’s 1HFY13 core net profit was in line with our earnings forecast but below consensus estimates.

- Pre-tax profit of the NFO division rose by 32.5% YoY to RM222.1mil in 1HFY13 underpinned by a decline in the prize payout ratio.

- On a QoQ basis however, the division’s earnings plunged by 50.3% to RM73.7mil in 2QFY13 due to higher prize payout.

- Ticket sales were weak dragged by soft consumer spending and competition from the illegal operators. Magnum’s ticket sales fell by 3.3% YoY to RM1.5bil in 1HFY13. There were 90 draws in 1HFY13 versus 89 draws in 1HFY12.

- We estimate industry ticket sales growth at a meagre 0.5% in 2011 and 0.6% in 2012.

- On a per draw basis, Magnum’s gross ticket sales shrank 4.3% from RM19.5mil in 1HFY12 to RM18.7mil in 1HFY13.

- We estimate that prize payout declined by 2.5-percentage points YoY to 63.9% in 1HFY13.

- Comparing 2QFY13 against 1QFY13, ticket sales slid by 17.4% to RM699.6mil. This was due to fewer draw days in 2QFY13 and the Chinese New Year seasonal effect in 1QFY13.

- There were 44 draws in 2QFY13 compared with 46 draws in 1QFY13.

- On a per draw basis, gross ticket sales edged down 13.6% from RM20.0mil in 1QFY13 to RM17.3mil in 2QFY13.

- We estimate Magnum’s prize payout at 67.7% in 2QFY13 against 60.8% in 1QFY13.

Source: AmeSecurities