-  Maintain HOLD on Magnum Bhd with a lower DCF-based fair value of RM3.45/share.

-  Magnum’s share price has remained relatively flat since mid-2013 due to weak industry ticket sales and uncertainty over the impact of GST (goods and services tax). Magnum is currently trading at a FY14F PE of 13.5x.

-  “Da Ma Cai” introduced a new game called DMC Jackpot in January 2014. This was the first game approved by the authorities in the industry since November 2012.

-  Punters pick a set of 4D and 3D numbers and match them with winning numbers. Minimum prize money for first prize is RM1.8mil while there is no limit on the maximum payout.

-  We believe that DMC Jackpot would improve “Da Ma Cai” ticket sales due to higher spending from existing customers. However, we reckon that it would not be exciting enough to draw clientele from Berjaya Sports Toto and Magnum Bhd.

-  Magnum’s FY13 results were below consensus estimates but within our earnings forecast.

-  Magnum has declared a final gross DPS of 5 sen in 4QFY13, which brings total gross DPS to 20 sen in FY13. This translates into a decent yield of 6.6%. We forecast a same DPS of 20 sen for FY14F, which implies a payout of 91%.

-  The slide in Magnum’s ticket sales since FY11 has not stopped.

-  On a per draw basis, Magnum’s NFO revenue contracted by 4.5% in FY11, 4.4% in FY12 and 2.6% in FY13. There were 178 draws in FY13 versus 179 draws in FY12.

-  Ticket sales expanded by 5.5% QoQ in 4QFY13. However on a per draw basis, ticket sales slid by 0.8% QoQ. There were 45 draws in 4QFY13 against 43 draws in 3QFY13.

-  Pre-tax profit of the NFO division improved by 15.1% to RM407.7mil in FY13 in spite of the fall in ticket sales. This was due to a lower prize payout ratio of 64% in FY13 compared with 65.5% in FY12.

-  On a QoQ basis, pre-tax profit of the NFO division declined by 23% to RM80.7mil in 4QFY13. Prize payout inched up from 63.1% in 3QFY13 to an estimated 66.5% in 4QFY13.

Source: AmeSecurities