MAGNUM (3859) : Magnum Bhd - No mood to punt
Target RM2.96 (Target: HOLD)
9MFY14 core net profit of RM196m was 67% of our and 63% of consensus forecasts due to a higher tax rate in 3Q. However, we deem this in line as 4Q should be stronger. As expected, a 5 sen dividend was declared in 3Q (ex-date: 10 Dec), in line with our expectations We cut FY15-16 earnings by 15-25% on assumption of lower sales per draw (-3% for both FY15 and FY16) and negative impact of GST, that we think Magnum will need to absorb to prevent further loss of market share to the illegal operators. We downgrade our DDM-based target price and rating from add to Hold as we expect the triple whammy of GST, poor consumer discretionary spending outlook next year and continued loss of market share to illegal operators to dampen sentiment on the NFO operators. Magnum should continue to be sustained by its active share buyback programme and an attractive 6.9% yield. Switch to GENM.
Sluggish NFO sales signals weaker consumer sentiment
3Q sales fell 4.6% yoy and 4% qoq, which is indicative of worsening consumer sentiment and deeper market share loss to the illegal market despite the fact that 3Q saw one less draw qoq. We think that the higher tax rate in 3Q was due to non-tax deductibility on mark-to-market loss on investments. Payout ratio also normalised in 3Q to an estimated 65% vs 61% in 2Q, resulting in operating profit falling 26% qoq but only -2% yoy (3Q13 payout:66%).
New game 4D Jackpot Gold to boost sales by only 2%
On 8 Nov 14, Magnum launched a new game variant, Magnum 4D Jackpot GOLD. We are positive on this game, although punter education will require time as the rules are rather unintuitive and complicated. Over the longer term, it should gain some market share over Berjaya Sports Toto’s lotto games and reduce the impact of market share loss to illegal operators, who cannot offer such long-odds games. We estimate that the initial contribution to Magnum’s revenues and net profit to be small, at only c.2% and 0.5%, respectively.
2015 will be a triple whammy year
In FY15, Magnum will be hit by GST (which we estimate will be calculated on net revenue less prize payout and pool betting duty), poorer consumer discretionary spending and continued loss of market share to the illegal operators.
Source: CIMB Daybreak - 28 November 2014
Target RM2.96 (Target: HOLD)
9MFY14 core net profit of RM196m was 67% of our and 63% of consensus forecasts due to a higher tax rate in 3Q. However, we deem this in line as 4Q should be stronger. As expected, a 5 sen dividend was declared in 3Q (ex-date: 10 Dec), in line with our expectations We cut FY15-16 earnings by 15-25% on assumption of lower sales per draw (-3% for both FY15 and FY16) and negative impact of GST, that we think Magnum will need to absorb to prevent further loss of market share to the illegal operators. We downgrade our DDM-based target price and rating from add to Hold as we expect the triple whammy of GST, poor consumer discretionary spending outlook next year and continued loss of market share to illegal operators to dampen sentiment on the NFO operators. Magnum should continue to be sustained by its active share buyback programme and an attractive 6.9% yield. Switch to GENM.
Sluggish NFO sales signals weaker consumer sentiment
3Q sales fell 4.6% yoy and 4% qoq, which is indicative of worsening consumer sentiment and deeper market share loss to the illegal market despite the fact that 3Q saw one less draw qoq. We think that the higher tax rate in 3Q was due to non-tax deductibility on mark-to-market loss on investments. Payout ratio also normalised in 3Q to an estimated 65% vs 61% in 2Q, resulting in operating profit falling 26% qoq but only -2% yoy (3Q13 payout:66%).
New game 4D Jackpot Gold to boost sales by only 2%
On 8 Nov 14, Magnum launched a new game variant, Magnum 4D Jackpot GOLD. We are positive on this game, although punter education will require time as the rules are rather unintuitive and complicated. Over the longer term, it should gain some market share over Berjaya Sports Toto’s lotto games and reduce the impact of market share loss to illegal operators, who cannot offer such long-odds games. We estimate that the initial contribution to Magnum’s revenues and net profit to be small, at only c.2% and 0.5%, respectively.
2015 will be a triple whammy year
In FY15, Magnum will be hit by GST (which we estimate will be calculated on net revenue less prize payout and pool betting duty), poorer consumer discretionary spending and continued loss of market share to the illegal operators.
Source: CIMB Daybreak - 28 November 2014
