- Maintain HOLD on Magnum Bhd with a lower DCF-based fair value of RM3.00/share. Magnum is currently trading at FY15F PE of 15.4x. Our fair value implies an FY15F PE of 16.7x.

- We have forecast Magnum’s FY15F gross DPS at 15 sen compared with 20 sen in FY14. FY15F gross DPS of 15 sen translates into a yield of 5.4% and payout of 84%.

- We have reduced Magnum’s FY15F EPS by 5.8% to account for a more conservative revenue growth and impact of the GST (Goods and Services Tax).

- Magnum is expected to recognise nine months of GST in FY15F. GST is estimated to reduce Magnum’s FY16F EPS by 12.3% due to the full-year impact.

- We have assumed a prize payout of 63% in FY15F compared with 64.8% in FY14. We have also assumed that ticket sales per draw would continue to decline by 4.0% in FY15F.

- Magnum’s FY14 results were above our expectations as prize payout declined in 4QFY14. The group’s results were below consensus estimates.

- Magnum’s ticket sales contracted by 3.5% to RM2.9bil in FY14. On a per draw basis, gross ticket sales eased by 4.0% from RM18.2mil in FY13 to RM17.5mil in FY14. There were 179 draws in FY14 compared with 178 draws in FY13.

- On a quarterly basis, NFO revenue improved by 8.5% to RM726.9mil in 4QFY14 due to a higher number of draws. There were 46 draws in 4QFY14 versus 43 draws in 3QFY14.

- On a per draw basis, ticket sales inched up 1.5% QoQ to RM17.2mil in 4QFY14 as Magnum received a boost from the 4D Jackpot Gold game. Recall that Magnum launched the 4D Jackpot Gold game in November 2014.

- Pre-tax profit margin of the NFO unit inched down from 13.5% in FY13 to 12.8% in FY14. Prize payout ratio increased from 63% in FY13 to 64.8% in FY14.

- Comparing 4QFY14 against 3QFY14, pre-tax profit margin improved from 11.5% to 12.4%. Prize payout ratio was estimated at 65.1% in 4QFY14 versus 66.0% in 3QFY14.

Source: AmeSecuriites