Magnum’s  1HFY14  net  profit  of  MYR150.5m  fell  short  of  our expectations  due  to  a  higher-than-expected  prize  payout  ratio  in 2QFY14.  Nonetheless,  management  declared  a  second  interim  DPS  of 5.0 sen, with its  YTD DPS  at a hefty  10.0 sen. While  earnings prospectsare  unlikely  to  be  exciting  going  forward,  we  maintain  our  NEUTRALcall,  with  a  lower  SOP-based  FV  of  MYR3.22  (from  MYR3.24),  as  we expect share price to be supported by its dividend yield of 5.7-6.0% p.a.  Results  review.  Magnum’s  1HFY14  revenue  dipped  3.8%  y-o-y  to MYR1.49bn  due  to  lower  number  of draws  at  89  (1HFY13:  90  draws), while  ticket sales  also weakened  due to a  lower average jackpot size of MYR7.5m  (vs  MYR8.4m  previously).  EBITDA  shed  11.2%  y-o-y  to MYR234.8m,  weighed  by  a  marginal  uptick  in  its  overall  prize  payout ratio  to  an  estimated  66.3%  (from  65.8%).  All  in,  its  1HFY14  core earnings  of  MYR150.5m  (-22.9%  y-o-y)  were  within  consensus  but  fell short of our expectations  at 48.1% and 44.5% of the  respective full-year estimates,  dragged  down  by  a  higher-than-expected  prize  payout  ratio booked  in  during 2QFY14. We estimate its 2QFY14 prize payout ratio at 67.7%, up by some 290bps from 64.8% in 1QFY14. 

Forecasts and risks. We trim our FY14-15F EPS estimates by 5.3-7.1% to  factor  in  a  more  conservative  prize  payout  ratio  going  forward.  We also  introduce  our  FY16F  estimate.  Key  risks  include  the  potential implementation  of  the  goods  and  services  tax  (GST)  on  the  gaming sector  in  April  2015  and  potential  slower  ticket  sales  as  consumers tighten their belts amidst rising inflationary pressure. 

Second  DPS of 5.0 sen.  Management declared its second  interim DPS of 5.0 sen. Its YTD DPS of 10.0 sen translates into a payout ratio of over 95%, which is in line with management’s commitment to a minimum 80%level. We  forecast  for Magnum’s dividend yield to come in at  5.7-6.0% annually for FY14-16F, pegging a payout ratio of 80%.

Maintain NEUTRAL.  All in, we reiterate our NEUTRAL stance,  with our SOP-based FV tweaked lower to MYR3.22 (from MYR3.24) following our earnings revision. Although Magnum’s earnings prospects are unlikely to be exciting going forward, we expect  its  share price to be supported by its decent dividend yield of 5.7-6.0% p.a. 

Source: RHB