Magnum’s  1QFY14  core  earnings  of  MYR82.5m  were  within expectations  at  24.4%  and  26.3%  of  our  and  consensus  estimates respectively.  Management declared  a  first  interim  DPS of 5.0 sen. This translates  into  a  payout ratio of 86.2% for the quarter,  which is  in line with  its  commitment  of  a  minimum  80%  payout  ratio  going  forward. Maintain NEUTRAL with our SOP-based FV unchanged at MYR3.24.

• Within  expectations.  1QFY14  revenue  of  MYR792.5m  closed  6.9% higher q-o-q on higher number of draws at 46 (vs 44 draws previously) but down 6.5% y-o-y as ticket sales were slower due to lower average jackpot size of MYR6.0m (vs MYR10.9m in 1QFY13).  EBITDA registered MYR133.6m  (+33.2%  q-o-q;  -23.6%  y-o-y)  as  gross  payout  ratio  is estimated  to  average  at  64.8%  during  the  quarter  (vis-à-vis  60.4%  in 1QFY13 and 69.0% in 4QFY13). Excluding its discontinued operations in earlier quarters following the disposal of MPHB Capital (MPHB MK, NR), core earnings surged  19.2% q-o-q  to MYR82.5m but  were  down 33.4% y-o-y partly due to higher effective tax rate booked in. All in, numbers are largely in line with both  our and consensus  expectations, at  24.4% and 26.3% of the full-year forecasts respectively.
• First  DPS  of  5.0  sen  declared.    Management  declared  a  first  interim DPS of 5.0 sen. This translates into payout ratio of 86.2% for the quarter, which is in line with its commitment of a minimum 80% payout ratio going forward.  We are forecasting for Magnum’s dividend yield to come in at 6.2-6.3% annually for FY14F-FY15F, pegging a payout ratio of 80%.
• Forecasts  and  risks.  No  changes  to  our  forecasts  with  the  results largely in line. Key risks include  a potential implementation of Goods and Services Tax (GST) on the gaming sector come  April 2015 and potential slower ticket sales upon GST implementation as consumers tighten their belts to cope with rising inflationary pressures.
• Maintain NEUTRAL.  All in, we reiterate our NEUTRAL stance with  our SOP-based FV  unchanged at  MYR3.24. While  Magnum’s dividend yield of 6.2-6.3% p.a. is appealing, we remain cautious on potential earnings shortfall once  GST  kicks  in  and  given  that  the  illegal  betting  market is estimated to be twice the size of the legal industry.

Source: RHB