Magnum’s FY14  net  profit  of  MYR257.3m  (-21.2%  YoY)  fell  short  of expectations  due  to  higher-than-expected  effective  tax  rate  incurred.   Maintain  NEUTRAL.  We  reduce  our  TP  to  MYR2.99  (from  MYR3.06)  as we  cut  our  FY15-16F  EPS  by  3.3-4.3%.  This  implies  an  8%  upside.  On the positive side, management declared a fourth interim DPS of 5.0 sen. FY14 DPS stands at a hefty 20.0 sen, at a payout ratio of over 111.8%.  

Results review. FY14 revenue dipped 3.5% YoY to MYR2.89bn despite a  slightly  higher  number  of  draws  at  178  (177  draws  in  FY13)  as  ticket sales weakened on lower average jackpot size of MYR9.8m (MYR10.5m in  FY13).  EBIT  shed  7.4%  YoY  to  MYR425.6m,  weighed  by  a  marginal uptick  in  its  overall  prize  payout  ratio  to  an  estimated  67.1%  (66.4%  in FY13). All in, core earnings of MYR257.3m fell short of both consensus and  our  expectations  at  93.4%  and  95.6%  of  the  respective  full-year estimates,  dragged  down  by  higher-than-expected  effective  tax  rate  of 30.0%  booked  in  during  the  year.  4QFY14  core  earnings  closed  35.0% higher QoQ at MYR61.3m on lower prize payout ratio at 67.5% vs 68.4% previously but weaker by 7.7% YoY on higher effective tax rate.  

Generous  dividend  payout.  Management  declared  its  fourth  interim DPS of 5.0 sen. Its FY14 DPS of 20.0 sen translates into a payout ratio of  111.8%,  which  is  consistent  with management’s commitment to a minimum 80% level. We forecast Magnum’s dividend yield to come in at 6.5-6.7% annually for FY15-16F, pegging to a payout ratio of 90%.   Forecasts  and  risks.  We  trim  our  FY15-16F  EPS  by  3.3-4.3%  as  we update  our  model  following  the  release  of its  full-year  results.  Key  risks include  potential  slower  ticket  sales  as  consumers  tighten  their  belts amidst  rising  inflationary  pressure  as  well  as  continued  rampant competition from illegal operators.   

Maintain NEUTRAL. All in, we reiterate our NEUTRAL stance, with our SOP-based  TP  lowered  to  MYR2.99  (from  MYR3.06)  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 over 6% per annum.

Financial Exhibits

Financial Exhibits

SWOT Analysis

 A pure gaming play with a policy of paying out a minimum of 80% of its earnings

Company Profile

Magnum is one of the largest NFO operators in Malaysia.

Source: RHB