Magnum’s FY13 core earnings of MYR329.3m were within estimates.  A final  DPS of 5.0 sen  was declared, bringing its  FY13  DPS to  20.0  sen. This translates into a decent yield of 6.6%. Maintain NEUTRAL, with our SOP-based  FV  tweaked  to MYR3.24  (from  MYR3.41)  as we  update our model  to  incorporate  its  full-year  results  as  well  as  revisions  in  our WACC assumptions amid a rising interest rate environment.

• Within  expectations.  Magnum’s  FY13  revenue  dipped  3.2%  y-o-y  to MYR2.99bn  owing  to  there being  one less draw during the period,  with the number of draws totaling 177. Nevertheless, EBITDA improved 9.2% y-o-y to MYR473.7m led by a lower prize payout ratio, which boosted the group’s profit. We estimate that its FY13 gross payout ratio improved to 66.4%  from  69.0%  in  FY12.  Excluding  its  discontinued  operations following  the  disposal  of  MPHB  Capital  (MPHB  MK,  NR),  Magnum’s FY13  core  earnings  surged  26.7%  y-o-y  to  MYR329.3m  as  profitability was  further  lifted  by  lower  interest  expenses  (-42.2%  y-o-y).  All  in,  the numbers are largely  in line with both consensus and our expectations , at 99.5% and 99.7% of the  full-year forecasts respectively. The  company’s 4QFY13  core  earnings  of  MYR69.2m  were  higher  by  28.1%  y-o-y  and 6.9% q-o-q due to an improved prize payout ratio.
• Yield at >6%.  Management declared a final  DPS of 5.0 sen, bringing its FY13 DPS to 20.0 sen. This implies a payout ratio of over 87%, which is consistent  with  its  management’s  commitment  of  a  minimum  of  80%. Pegging  a  payout  ratio  of  80%  moving  forward,  we  are  forecasting  for Magnum’s dividend yield to come in at 6.3% annually for FY14F-FY15F.
• Maintain  NEUTRAL.  While  we  make  no  major  changes  to  our  FY14F and FY15F earnings estimates,  our SOP-based FV  is revised  lower  to MYR3.24  as we update our model following the release of its full year results, as well as take into account revisions in our WACC  assumptions amid  an environment of  rising interest rates. We bump  up our WACC to 9.0% from 8.6%  to  factor  in:  i)  a  higher risk-free rate of 4.2%; ii) higher cost of debt  of  6.5%; and iii)  an  expected market return  of  9.8%. Given the limited upside, we maintain our NEUTRAL recommendation. 

Financial Exhibits

SWOT Analysis

• A pure gaming play with a policy of paying out a minimum 80% of earnings.

Company Profile
Magnum is one of the largest NFO operators in Malaysia.

Source: RHB