Period  2Q14/1H14

Actual vs. Expectations The 2Q14 results came in within expectations as net profit of RM68.0m brought 1H14 net income to RM150.5m which made up 47% of our FY14 full-year estimates and 48% of market consensus.

Dividends  A second interim NDPS of 5 sen was declared, (ex-date: 9 Sep, payment date: 26 Sep) which is the same as 1Q14 and 2Q13. This brings YTD 1H14 NDPS to 10 sen.

Key highlights  After a favourable luck factor in 1Q14 with an estimated prize payout ratio (EPPR) of 62.8%,

2Q EPPR deteriorated to 65.7% in 2Q14. This partly contributed to the 18% fall in 2Q14 net profit QoQ from RM82.5m. 2Q14 topline declined 12% to RM696.6m as NFO ticket sales contracted 12% to RM756.8m due to: (i) lesser draw days of 44 vs. 46 and (ii) lower average ticket sales per draw of RM17.2m from RM18.7m which was backed by the CNY factor in 1Q14.

 On a YoY comparison, 2Q14 net profit jumped from RM0.6m net profit in 2Q13 where the previous results were impacted by a one-off disposal loss of RM69.8m from MPHB Capital Bhd’s (MPHBCAP, NOT RATED) listing. Stripping out MPHBCAP’s earnings and the oneoff losses, MAGNUM’s 2Q14 net profit would have declined 5%. 2Q14 ticket sales fell slightly to RM756.8m from RM760.4m while the luck factor was better at 65.7% vs 67.3% last year. Both quarters had the same number of draws (44) and average ticket sales per draw dipped slightly to RM17.2m from RM17.3m previously.

Outlook  Luck factor remains the earnings deciding factor as the prize payout ratio is not consistent from quarter to quarter.

Change to Forecasts No changes to our FY14E-FY15E forecasts.

Rating Maintain OUTPERFORM

Valuation  Maintain price target of RM3.59/DCF share.

Risks to Our Call A rise in gaming tax by the government

 Weaker-than-expected ticket sales and a higherthan-expected EPPR.

Source: Kenanga