- Maintain HOLD on Magnum Bhd with a lower DCF-based fair value of RM2.90/share versus RM3.00/share previously. Our fair value implies an FY16F PE of 16.8x.

- Magnum’s 9MFY15 results were below our expectations and consensus estimates due to a higher-than-expected prize payout ratio in 3QFY15.

- We estimate Magnum’s prize payout at 68.1% in 3QFY15 versus 63.0% in 2QFY15. As a result, Magnum’s gaming profits fell by 40.2% QoQ to RM53.2mil. We have revised Magnum’s FY15F EPS downwards by 8.8% to account for this.

- Magnum declared a gross DPS of 2.5 sen in 3QFY15, which brings total gross DPS to 12.5 sen in 9MFY15 (9MFY14: 15 sen). Payment date of 3QFY15’s gross DPS of 2.5 sen is 28 December 2015.

- Our gross DPS forecast for Magnum is 15 sen in FY15F, which is lower than FY14’s gross DPS of 20 sen. The fall in gross DPS is in line with Magnum’s unexciting net profit in FY15F. In spite of the decline in gross DPS in FY15F, Magnum’s dividend yield is still decent at 5.6%.

- Magnum’s ticket sales continued to be in the doldrums in 3QFY14, dragged by weak consumer spending following the implementation of the GST (Goods and Services Tax) in April 2015.

- Gross ticket sales per draw edged down by 1.1% from RM16.2mil in 2QFY15 to RM16.1mil in 3QFY15. Comparing 9MFY15 against 9MFY14, gross ticket sales per draw plummeted by 2.8%.

- There were 133 draws in 9MFY15, which was the same as 9MFY14. There were 44 draws each in 2QFY15 and 3QFY15.

- We have assumed that gross ticket sales per draw would fall by 4% in FY15F before flattening in FY16F. We think that it would take six to nine months for consumer spending to normalise.

- Pre-tax profit of lottery division slid by 3.3% YoY to RM271.2mil in 9MFY15 mainly due to the recognition of the GST.

- Prize payout was marginally lower at an estimated 64.0% in 9MFY15 versus 64.0% in 9MFY14.

Source: AmeSecurities Research - 23 Nov 2015