- Maintain HOLD on Magnum Bhd with a lower DCF-based fair value of RM3.20/share versus RM3.45/share previously.

- We forecast Magnum’s FY14F-FY15F dividend yields at 6.9% each. Magnum has declared a gross DPS of 5 sen for 3QFY14. Gross DPS amounted to 15 sen in 9MFY14.

- On 8 November 2014, Magnum Bhd launched a new game called 4D Jackpot Gold. It remains to be seen if the new game would translate into improved ticket sales in the current environment of soft consumer spending. In any case, we have assumed flat ticket sales per draw growth in FY15F versus a 4% decline in FY14.

- Magnum’s 9MFY14 results were below our expectations and consensus estimates due to sluggish ticket sales and an increase in the prize payout ratio. Effective tax rate was also high at 30.7% in 9MFY14. We have reduced Magnum’s FY14F EPS by 18.3% to account for these.

- Magnum’s NFO revenue slid 4.0% YoY to RM2.16bil in 9MFY14. On a per draw basis, ticket sales contracted by 4.0%. There were 133 draws each in 9MFY14 and 9MFY13.

- Ticket sales declined by 3.8% from RM696.3mil in 2QFY14 to RM669.8mil in 3QFY14. Ticket sales per draw inched down 1.6% QoQ to RM16.9mil in 3QFY14. There were 43 draws in 3QFY14 compared with 44 draws in 2QFY14.

- In its results announcement, Magnum attributed the fall in ticket sales to weak consumer spending and competition from illegal operators. The implementation of GST (Goods and Services Tax) from April 2015 onwards is expected to dampen consumer sentiments further.

- In addition, we reckon that young professionals are more enticed with online and sports betting, which are more attractive than the traditional lottery games.

- Pre-tax profit margin slid from 14.5% in 9MFY13 to 13.0% in 9MFY14. Pre-tax profit margin shed 0.7ppt QoQ to 11.5% in 3QFY14.

- The contraction in pre-tax margin was due to an increase in the prize payout ratio. We estimate Magnum’s prize payout ratio at 64.6% in 9MFY14 versus 63.8% in 9MFY13. On a quarterly basis, prize payout was 66.0% in 3QFY14 compared with 65.4% in 2QFY14.

Source: AmeSecurities