MAGNUM (3859) - Magnum Bhd - No excitement
Target RM2.61 (Stock Rating: HOLD)
FY14’s core net profit of RM257m was below our expectations at 88% of our full-year estimate of RM294m on poorer NFO sales (-3.5% vs. our -3% estimate) and higher prize payout (FY14’s 65% vs. FY13’s 64%). Its 4Q dividend of 5 sen/share (FY14: 20 sen) was in line with estimates. We lower our FY15-16 EPS by 5% on the assumption of lower sales per draw (-4% in FY15 vs. -3% previously) but lift our DDM-based target price slightly on lower risk-free rate. Magnum should continue to be sustained by an active share buyback programme and attractive dividend yield of 7.3%. Maintain Hold. We advise investors to switch to GENM
Modest recovery in 4Q
4QFY14 saw a smaller contraction in revenue of 1.9% yoy (3Q: -4.6%), but was up 9% qoq as 3Q had one less draw. 4Q operating profit rose 13% yoy (19% qoq) on lower prize payout ratio (4Q14: 64%, 4Q13: 66%, 3Q14: 65.4%). But a stronger 4Q was insufficient to make up for the weak 3Q, resulting in full-year NFO sales contracting 3.5% vs. our estimate of -3%. Full-year DPS of 20 sen translates to 110% of FY14’s net profit, in line with expectations. Despite the tepid earnings outlook, Magnum should have no problems maintaining its quarterly 5 sen/share dividend, so we keep our 20 sen DPS forecast intact.
GST impact discounted but structural problems remain
With the clarity of the GST impact now out of the way (GST will be calculated on gross revenue less gaming tax, pool betting duty and prize payout), we believe that Magnum’s share price has discounted the earnings risk of GST. However, the structural problems of the industry remain, namely the continued strength of the illegal operators amid poor enforcement. A recent Star newspaper feature said illegal operators were gaining business momentum, with some offering mobile betting and masquerading as mobile phone shops.
4D Jackpot Gold still small
The new game variant, 4D Jackpot Gold (launched in Nov 14) has lost some momentum after the initial excitement. Sales per draw of RM400k in the initial stage has now settled at RM200k-250k per draw after four months. We estimate that the contribution to Magnum’s revenues and net profit will be small at only c.1.5% and 0.3% respectively.
Source: CIMB Daybreak - 16 February 2015
Target RM2.61 (Stock Rating: HOLD)
FY14’s core net profit of RM257m was below our expectations at 88% of our full-year estimate of RM294m on poorer NFO sales (-3.5% vs. our -3% estimate) and higher prize payout (FY14’s 65% vs. FY13’s 64%). Its 4Q dividend of 5 sen/share (FY14: 20 sen) was in line with estimates. We lower our FY15-16 EPS by 5% on the assumption of lower sales per draw (-4% in FY15 vs. -3% previously) but lift our DDM-based target price slightly on lower risk-free rate. Magnum should continue to be sustained by an active share buyback programme and attractive dividend yield of 7.3%. Maintain Hold. We advise investors to switch to GENM
Modest recovery in 4Q
4QFY14 saw a smaller contraction in revenue of 1.9% yoy (3Q: -4.6%), but was up 9% qoq as 3Q had one less draw. 4Q operating profit rose 13% yoy (19% qoq) on lower prize payout ratio (4Q14: 64%, 4Q13: 66%, 3Q14: 65.4%). But a stronger 4Q was insufficient to make up for the weak 3Q, resulting in full-year NFO sales contracting 3.5% vs. our estimate of -3%. Full-year DPS of 20 sen translates to 110% of FY14’s net profit, in line with expectations. Despite the tepid earnings outlook, Magnum should have no problems maintaining its quarterly 5 sen/share dividend, so we keep our 20 sen DPS forecast intact.
GST impact discounted but structural problems remain
With the clarity of the GST impact now out of the way (GST will be calculated on gross revenue less gaming tax, pool betting duty and prize payout), we believe that Magnum’s share price has discounted the earnings risk of GST. However, the structural problems of the industry remain, namely the continued strength of the illegal operators amid poor enforcement. A recent Star newspaper feature said illegal operators were gaining business momentum, with some offering mobile betting and masquerading as mobile phone shops.
4D Jackpot Gold still small
The new game variant, 4D Jackpot Gold (launched in Nov 14) has lost some momentum after the initial excitement. Sales per draw of RM400k in the initial stage has now settled at RM200k-250k per draw after four months. We estimate that the contribution to Magnum’s revenues and net profit will be small at only c.1.5% and 0.3% respectively.
Source: CIMB Daybreak - 16 February 2015
