Magnum’s 1H15 net profit of MYR150.6m was within expectations.Dividend payout remained generous as management declared a secondinterim DPS of 5 sen, with 1H15 DPS now totalling 10 sen at an implied payout ratio of 94.3%. Maintain NEUTRAL with our TP trimmed to MYR2.61 (from MYR2.74, 2% upside), as we revise our WACC assumptions to reflect the more cautious market sentiment.

Results review. 1H15 revenue dipped by a marginal 2.7% YoY to MYR1.45bn due to lower number of draws (89 draws in 1H15 vs 90 in 1H14), while ticket sales stayed flattish despite higher average jackpot size of MYR12.2m (1H14: MYR7.5m) amid weaker consumer sentiment. EBIT, meanwhile, inched up to MYR240.9m (+0.9% YoY), thanks to amarginal decline in its overall prize payout ratio to an estimated 63% (1H14: 66%). All in, core earnings of MYR150.6m came in at 57.4%/58.3% of our/consensus full-year estimates. We deem this within expectations, given that 2H is seasonally weaker. 2Q15 numbers aregenerally weaker QoQ as 1Q is seasonally its strongest quarter due to Chinese New Year festive sales. 2Q15 numbers also weakened YoY owing to slower ticket sales (2Q15 average jackpot size of MYR7.1m vs MYR9.2m in 2Q14) and the implementation of the goods and services tax (GST) effective 1 Apr 2015.

Generous dividend payout. Management declared its second interim DPS of 5 sen, which translates into a payout ratio of over 119% for the quarter. 1H15 DPS of 10 sen implies a payout ratio of 94.3%. We deem this in line with management’s dividend commitment of a minimum 80% payout ratio.

Forecasts. We make no major changes to our earnings forecasts. We continue to caution that punters will likely spend less on draws going forward due to rising inflationary pressure and higher living costs following the GST implementation. That said, our FY15-17F DPS of 16-17 sen (pegged at a 90% payout ratio) still translates into a decent yield of 6.4-6.5% pa.

Maintain NEUTRAL. We lower our SOP-based TP to MYR2.61 (from MYR2.74), as we revise our WACC to 9.2% (from 9%) to reflect the more cautious market sentiment. Although Magnum’s earnings prospects are unlikely to be exciting, we continue to see it as a dividend play – which may appeal to yield-seeking investors. Maintain NEUTRAL.