• Still NEUTRAL, new MYR1.24 DCF TP (from MYR1.08), 1% downside. Magnum’s 1Q24 earnings exceeded expectations on stronger-than- expected sales. We believe number forecast operators (NFOs) offer a high degree of defensiveness due to the relatively inelastic demand from punters and generous dividend payouts. That said, with the current valuation close to the mean, further re-rating catalysts would be from favourable policies or the monetisation of Magnum’s stake in U-Mobile.

• Above our expectations, within consensus’. 1H24 core earnings of MYR68.6m (+10.7% YoY) accounted for 58% and 46% of our and Street's full-year estimates. The positive deviation was due to stronger-than- expected ticket sales. A second interim DPS of MYR0.02 (2Q23: MYR0.015) was declared and will go ex on 12 Mar, bringing FY23 DPS to MYR0.035 (FY22: MYR0.03) – exceeding our estimates.

• Results review. YoY, 1H24 revenue rose 9.5% to MYR1.2bn, driven by a higher number of draws (1H24: 83 vs 1H23: 81) and a long jackpot run in May and Jun 2024. 1H24 PBT margin expanded by 0.2ppts, supported by stronger sales and savings in interest expenses due to a lower amount of medium-term notes (MTN) outstanding, although this was partially offset by higher prize payouts from the jackpot run. QoQ, 2Q24 revenue grew 3% to MYR601.9m despite a lower number of draws (2Q24: 41, 1Q24: 42), thanks to the aforementioned jackpot run. Coupled with a lower prize payout QoQ (2Q: 61.7%, 1Q: 67.6%), core earnings rose 90.8% QoQ to MYR45m.

• Outlook. Based on our channel checks with industry players, competition from illegal NFOs has intensified, particularly following the closure of legal NFO outlets in Kedah and Perlis. While stricter enforcement against illegal NFOs and the legalisation of online gaming could serve as a boost for the sector, these measures do not appear to be a priority for the Government. That said, a positive outcome from the recent appeal from NFOs to resume operations in Kedah (although outlets in the state represent only 3% of its total outlets) could help contain the market share of illegal operators. This could also deter other states from arbitrarily shutting down NFO outlets.

• Forecasts and ratings. Post results, we raised our FY24-26F earnings by 14.7%, 12.9% and 12.8% to account for the stronger-than-expected sales. Consequently, our DCF-TP is lifted to MYR1.24 (includes a 10% ESG discount), implying 12.2x FY25F P/E (close to its mean).

• Key downside risks: Unfavourable luck factor and policies, and softer-than- expected ticket sales. The converse represents upside risks.

Source: RHB Research - 26 Aug 2024