Magnum Bhd
(Feb 16, RM2.72)
Maintain hold call with an unchanged target price (TP) of RM2.45. We maintain our “hold” recommendation and RM2.45 TP, based on the dividend discount model. The dividend yield of over 5% should continue to support the share price.

As cautioned in our previous company write-up, Magnum reported financial year ended December (FY14) core net profit of RM257 million, which was within our expectations (RM260 million) but below the consensus estimate of RM275 million.

The market had underestimated the group’s effective tax rate. In FY14, Magnum’s effective tax rate of 30% was substantially higher than its historical effective tax rate of 25%. We understand Magnum’s effective tax rate will remain high at above 30% going forward as interest expense for a portion of its loan is not tax deductible. 

Gaming revenue per outlet per draw for FY14 fell 3.5% year-on-year due to lower ticket sales as a result of: (i) relatively unattractive jackpot prizes due to higher frequency of winning; (ii) increased competition from the illegal operators; and (iii) weak consumer spending.

The group declared a fourth interim dividend per share (DPS) of five sen. This brings FY14 DPS to 20 sen, implying a 110% payout ratio, which was within our expectations. 

Nonetheless, we are projecting that its dividend payout ratio will normalise to 85% going forward since its FY14 payout ratio of more than 100% is not likely to be sustainable. No change to our earnings estimates. — AllianceDBS Research, Feb 16

This article first appeared in The Edge Financial Daily, on February 17, 2015.