-  Maintain HOLD on Magnum Bhd with an unchanged DCFbased fair value of RM3.45/share.

-  Magnum is currently trading at FY14F PE of 13.8x and FY15F PE of 13.9x. In comparison, Berjaya Sports Toto’s PE multiples are 14.5x-16.1x for FY15F-FY16F.

-  Magnum declared a gross DPS of 5 sen in 1QFY14. For the full year, we have forecasted a gross DPS of 20 sen, which implies a yield of 6.6%.

-  The gross DPS of 20 sen translates into a net payout of 91% for FY14F (FY13: 106%). Magnum has an official dividend policy of paying out at least 80% of its annual net profit.

-  Magnum’s 1QFY14 results were within our earnings forecast and consensus estimates. Net profit declined by 33.4% YoY in 1QFY14 due to sluggish ticket sales and an increase in prize payout ratio.

-  Management attributed the tepid ticket sales in 1QFY14 to high frequency of 4D Jackpot prize being struck during Chinese New Year and cautious consumer spending.

-  There are no signs of an improvement in ticket sales. Going forward, industry ticket sales are envisaged to remain weak due to higher cost of living and competition from illegal operators.

-  We do not expect the 2014 FIFA World Cup in Brazil, which will take place next month, to affect ticket sales significantly. This is due to the large time difference between Brazil and Malaysia.

-  Magnum’s ticket sales declined by 6.4% YoY to RM792.4mil in 1QFY14. On a per draw basis, gross ticket sales slid 6.4% from RM20mil in 1QFY13 to RM18.7mil in 1QFY14.

-  We do not think that Da Ma Cai’s DMC Jackpot had a material impact on Magnum since it was launched in January 2014.

-  Pre-tax profit of the NFO division contracted by 27.6% YoY to RM119mil in 1QFY14 dragged by a higher prize payout ratio of 62.8% versus 58.6% in 1QFY13.

-  On a QoQ basis, Magnum’s gross ticket sales per draw improved 4.7% from RM17.9mil in 4QFY13 to RM18.7mil in 1QFY14. This was driven by the Chinese New Year festive period.

-  Prize payout was estimated at 62.8% in 1QFY14 compared with 66.5% in 4QFY13.

Source: AmeSecurities