We recently hosted Magnum’s CEO Dato' Lawrence Lim in our signature Corporate Digest Luncheon. While we continue to believe that the NFO industry would remain challenging amidst rising costs of living, we find positives in Magnum’s appealing yield, with the potential monetisation of its 6.3% stake in U Mobile as a re-rating wild card. Maintain NEUTRAL with our TP unchanged at MYR2.61 (3% downside).

Dividend depends on luck. Magnum’s 1H15 DPS totalled 10 sen at an implied payout ratio of 94.3%, which we deem generous vs its dividend commitment of a minimum 80% payout ratio. Management does not discount the possibility of repeating its DPS of 20 sen pa (similar to payouts in FY13 and FY14), should luck factor prove favourable in 2H15. That said, we are forecasting for a more realistic FY15-17 DPS of 16-17 sen pa (pegged at a payout ratio of 90%). This still translates into appealing dividend yields of 6.1-6.2% pa going forward.

Eventual listing of U Mobile. Management indicated that the group would eventually monetise its 6.3% stake in U Mobile by potentiallylisting the unit in 2-3 years’ time. Based on our channel checks, the mobile operator currently has close to 5m subscribers and is looking to break even at EBITDA level by end-2015. Magnum has thus far invested MYR231.6m for its 6.3% stake, including MYR20m in capital injectionthis year. Assuming a full disposal at a 20% premium to its costs, this could translate into a potential cash infusion of 7.4 sen per share, which we believe will likely be distributed to its existing shareholders in the form of special DPS.

3Q15 preview. We estimate that the group’s 3Q15 core earnings could potentially come in above our expectations at MYR60m-70m, due tobetter-than-expected ticket sales during the quarter, driven by the higher average jackpot size of MYR11.5m (+31.7% YoY, +61.5% QoQ). This,however, is subject to potential fluctuations in its luck factor and as such, we make no changes to our earnings forecasts at this juncture.

Maintain NEUTRAL. All in, we maintain our NEUTRAL stance with our SOP-based TP unchanged at MYR2.61. 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.