Period

1Q15

Actual vs. Expectations

1Q15 results came above expectations with net profit of RM90.8m raking up 32%/35% of house/street’s full-year estimates thanks largely to luck factor, which stood at 61.5% vs. our FY15 assumption of 65.0%.

Dividends

A 1 st interim NDPS of 5.0 sen was declared in 1Q15 (ex-date: 10 Jun; payment date: 26 Jun), which is the same as 4Q14 and 1Q14.

Key highlights

1Q15 net profit surged 48% QoQ to RM90.8m, the strongest since 1Q13 while revenue leapt 9% to RM791.3m from RM727.4m in 4Q14. This was largely due to: (i) good luck factor with estimated prize payout ratio (EPPR) dropping to 61.5% from 65.5% while average ticket sales per draw rose 11% to RM19.1m from RM17.2m which was due to the Chinese New Year effect. In fact, total NFO ticket sales grew 9% to RM860.0m from RM790.1m despite having 45 draws vs. 46 draws previously.

YoY, 1Q15 net income rose 10% from RM82.5m despite a flattish topline over the year. This again was mainly attributable to better EPPR of 61.5% from 62.8% besides a lower effective tax rate of 27% from 29% previously. On the other hand, average ticket sales per draw also improved by 2% from RM18.7m with 45 draws vs. 46 draws last year.

Outlook

While luck factor remains the deciding factor as the prize payout ratio is not consistent from quarter to quarter, the implementation of GST will add cost to the operator as it needs to absorb the 6% tax which will crimp its bottomline.

Change to Forecasts

While the 1Q15 results came above expectations, we decided to deduct the 6% GST from its topline effective Apr 2015. Thus, resulting in a 5.0%-6.67% cut in our FY15-FY17 estimates.

We keep all other key assumptions unchanged for now except for GST.

Rating

Maintain OUTPERFORM

Valuation

Post earnings revision, new DCF price target is now lowered to RM2.93/share from RM3.07/share.

With more than 5% net yield, MAGNUM offers a total return of 14%.

We believe the GST concern is already factored in.

Risks to Our Call

A rise in gaming tax by the government

Weaker-than-expected ticket sales and a higherthan-expected EPPR.

Source: Kenanga Research - 29 May 2015