Magnum’s 9M15 net profit of MYR188.6m was within expectations. Dividend payout remained generous as management declared a third interim DPS of 2.5 sen, with 9M15 DPS now totalling 12.5 sen at an implied payout ratio of 94.7%. Maintain NEUTRAL with a SOP-based TP unchanged at MYR2.61 (3% downside).

Results review. 9M15 revenue dipped 2.3% YoY to MYR2.11bn due to meagre ticket sales amidst subpar consumer sentiment. This was despite higher average jackpot size of MYR11.9m (9M14: MYR7.9m). Core earnings of MYR188.6m came within expectations at 72.0%/72.5% of our/consensus full-year estimates. 3Q15 numbers were generally weaker YoY due to incorporation of the goods and services tax (GST) effective 1 Apr , as well as the increase in its overall prize payout ratio to an estimated 66.7% (61.2% in 2Q15).

Generous dividend payout. Management declared its third interim DPS of 2.5 sen, which translates into a payout ratio of over 92.6% for the quarter. 9M15 DPS of 12.5 sen implies a payout ratio of 94.7%. We deem this in line with management’s dividend commitment of a minimum 80% payout ratio. While this is lower than 9M14 DPS of 15 sen, we find positives in management’s prudent approach in cash distribution given that 9M14 payout of 108.7% would not be sustainable in the long run.

Forecasts. We make no major changes to our earnings forecasts at this juncture. We continue to caution that punters are likely to 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 6.1-6.2% pa.

Maintain NEUTRAL. 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 with a SOP-based TP unchanged at MYR2.61.

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Magnum is one of the largest number forecast operators (NFOs) in Malaysia

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Source: RHB Research - 23 Nov 2015