MAGNUM’s FY22 results beat our expectation (but only met consensus’), underpinned by a record 4QFY22 since the pandemic on lower interest expense and minority interest. We expect ticket sales to recover to 80% of pre-pandemic level by FY24, from 70% in FY22. We keep our FY23F net profit and TP of RM1.39. Value has emerged from its recent shares sell-down. Upgrade to OUTPERFORM from MARKET PERFORM.

FY22 net profit of RM100.7m beat our forecasts by 10% but met consensus estimate. The key variance against our forecast came primarily from lower-than-expected interest expense (actual: RM45.8m vs. forecast: RM49.2m) and minority interest (actual: RM0.5m vs. forecast: RM1.1m). However, at the topline and EBITDA levels, results were well on track. It declared a final NDPS of 1.5 sen (ex-date: 14 Mar; payment date: 31 Mar) in 4QFY22, totalling FY22 NDSP to 5.0 sen (FY21A: 1.5 sen) against our forecast of 5.1 sen.

YoY. FY22 net profit jumped substantially to RM100.7m from a meagre net profit of RM0.2m with revenue soaring 61% to RM2.03b due to the draw cancellation in FY21 on MCO 2.0 and MCO 3.0 nationwide lockdown. There were only 126 draws in FY21 as opposed to 179 in FY22. Thus, average ticket sales per draw improved 14% to RM12.9m (70% of pre-pandemic level) from RM10.9m previously. However, FY22 prize payout ratio (EPPR) fell slightly to 70.0%, from 68.8% in FY21.

QoQ. 4QFY22 net profit surged 87% to RM37.5m, the best quarterly results since the pandemic started almost three years ago, on the back of 6% hike in revenue (ticket sales grew 6%). This was attributable to better luck factor of 69.5% from 71.2% as well as better ticket sale per draw by 1% to RM12.2m from RM12.0m. This implies a 69% ticket sales recovery to pre-COVID-19 level.

Forecasts. We keep FY23F net profit with EPPR, number of draws and ticket sales per draw assumptions at 67%, 164 draw and RM13.7m, respectively, and introduce new FY24F earnings which we expect to grow 2% on the back of these assumptions: 67% EPPR, 164 draws and RM14.0m per draw. Our FY23F-FY24F NDPS are based on 80% payout.

We believe the recent sell-down of its shares which fell 18% in the past three months, is overdone given the closure of NFO outlets in Kedah which started in Jan 2022 only dented its earnings by 5%. In addition, it also offers attractive dividend of >8%. Upgrade to OUTPERFORM from MARKET PERFORM with unchanged TP of RM1.39 (7.9% WACC; 2% TG). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Risks to our recommendation include: (i) non-renewal of licenses, (ii) unfavourable prize payout ratios, (iii) weak consumer spending amidst high inflation; and (iv) products perceived to be socially undesirable.

Source: Kenanga Research - 1 Mar 2023