(Nov 28, RM2.92)
Maintain neutral with lower target price (TP) of RM3.06. First nine months of financial year 2014 (9MFY14) revenue dipped 4% year on year (y-o-y) to RM 2.16 billion due to a slightly lower number of draws at 132. Ticket sales also weakened due to a lower average jackpot size of RM7.9 million. Earnings before interest, tax, depreciation and amortisation shed 8.4% y-o-y to RM322.1million, weighed by a marginal uptick in its overall prize payout ratio to an estimated 67% (from 65.5%). All in, core earnings of RM196 million fell short of both consensus and our expectations at 62.4% and 64.1% of the respective full-year estimates, dragged down by weaker-than-expected showing in the third quarter of FY2014 (3QFY14).
We attribute this to the higher-than-expected prize payout ratio booked in during the quarter at an estimated 68.4%, up by some 70 basis point (bps) quarter-on-quarter and 350 bps y-o-y.
Management declared its third interim dividend per share (DPS) of five sen. Its year to date (YTD), DPS of 15 sen translates into a payout ratio of over 108.7%. We forecast Magnum’s dividend yield to come in at 6.4% to 6.6% annually for FY15 and FY16, pegging a payout ratio of 90%.
We slash our FY14 earnings per share (EPS) by 14.3% after lowering our prize payout ratio due to unfavourable luck factor YTD. On top of that, we trim our FY15 and FY16 EPS by 7.1% to 8.2% to take into account potential earnings erosion from the implementation of the goods and services tax in April 2015.
Key risks include potential slower ticket sales as consumers tighten their belts amid rising inflationary pressure as well as continued rampant competition from illegal operators.
We expect its share price to be supported by its decent dividend yield of over 6% per annum — RHB Research, Nov 28
This article first appeared in The Edge Financial Daily, on December 1, 2014.