While returning to profitability, 3QFY20 net profit of RM30.3m is still below expectations as the recovery of ticket sales was slower than expected. However, ticket sales should improve further from here. Having said that, with near-term positives seemingly reflected in its share price, we continue to rate the stock MP with revised TP of RM2.10/DCF share. The stock is supported by a >5% yield.

3QFY20 below. Although turning profitable, 3QFY20 net profit of RM30.3m still missed expectations with 9MFY20 net profit of RM62.2m accounted for only 45% of both house’s/street’s FY20 estimates, as the ticket sales recovery was not strong enough. In comparison to BJTOTO (OP; TP: RM2.45), MAGNUM’s latest average ticket sales per draw fell 26% YoY as opposed to BJTOTO’s decline of 18% YoY. Meanwhile, it declared 3rd interim NDPS of 2.0 sen (ex-date: 11 Dec; payment date: 24 Dec), totalling 9MFY20 NDPS to 6.5 sen vs. 13.0 sen paid in 9MFY19.

Back to the black sequentially as expected, as 2QFY20 results were badly hit by MCO lockdown with only six draw days as compared to the usual 42 draws in 3QFY20. As such, 3QFY20 returned to net profit of RM30.3m from net loss of RM23.7m in the preceding quarter. Average ticket sales per draw improved to RM12.6m from RM9.2m while we had estimated prize pay-out ratio (EPPR) of 66.7% in 3QFY20 as opposed to 65.7% previously.

But ticket sales recovery still weak. YoY, 3QFY20 net profit plummeted 37% from RM48.0m in 3QFY19 on the back of 26% contraction in revenue, given the fall in ticket sales. Average ticket sales per draw fell 26% from RM16.9m while EPPR was similar as 66.5% previously. YTD, 9MFY20 net profit declined 66% to RM62.2m from RM182.4m as revenue tumbled 45%. This was due to the cancellation of 40 draws during MCO lockdown period as 9MFY20 saw only 84 draws vs. 125 draws last year while average ticket sales per draw also declined 18% to RM14.8m from RM18.0m previously with a higher EPPR of 65.5% from 64.7%.

Expect ticket sales to improve further. While its ticket sales recovery lagged that of BJTOTO, we believe MAGNUM’s sales should pick up further and estimate it should have recovered to 80% of pre-MCO period as opposed to BJTOTO’s 85%. With new assumptions of slower recovery in ticket sales, we lowered FY20/FY21 ticket sales per draw assumption to RM14.4m/RM16.0m from RM15.8m/RM16.6m while other key assumptions remain unchanged. As such, we cut FY20/FY21 estimates by 17%/4% while NDSP is also trimmed proportionally based on unchanged pay-out of 80%.

Fully priced; maintain MARKET PERFORM. While we expect ticket sales to improve further after a slower pace in 3QFY20, we believe near-term catalysts are already mostly priced in at the moment. Thus, it remains as MARKET PERFORM with a lower target price of RM2.10/DCF share from RM2.20/DCF share, post-earnings revision. Our call is still supported by a decent yield of >5%. Risk to our recommendation is a quicker-than-expected recovery of ticket sales.

Source: Kenanga Research - 27 Nov 2020