• 3Q15 results missed, on higher-than-expected prize payout.
• 9M15 prize payout ratio still within theoretical levels though.
• Maintain estimates, HOLD call and MYR2.75 DCF-based TP.

What’s New

3Q15 core net profit of MYR38m (-16% YoY, -37% QoQ) was below expectation at 15% of our full year estimate. That said, 3Q15 revenue of MYR660.2m was in line at 24% of our full year estimate. The earnings shortfall was because we estimate that the actual 3Q15 prize payout ratio stood at 67% or 4ppts higher than forecast. The third interim single tier DPS of 2.5sen was down 50% YoY and QoQ but it was within expectations. Assuming a fourth interim DPS of 2.5sen as well, 2015 DPS will stand at 15sen or 100% of our full year estimate. We opine that the hitherto quarterly single tier DPS of 5sen is unsustainable as it will translate into >100% DPR. 3Q15 core net profit was down 16% YoY as we estimate that the 3Q15 estimated prize payout ratio of 67% was up 2ppts YoY. 3Q15 core net profit was down 37% QoQ as we estimate that the 3Q15 estimated prize payout ratio of 67% was up 5ppts QoQ.

What’s Our View

We leave our earnings estimates and MYR2.75 DCF-TP unchanged.

This is because 9M15 core net profit of MYR188.7m (-5% YoY) and 9M15 revenue of MYR2.1b (-3% YoY) are still within range at 72% and 75% of our full year estimates respectively. While the 3Q15 estd. prize payout ratio was a dismal, we estimate that the 9M15 prize payout ratio was still within the theoretical range of ~63%. Our 2015 core net profit forecast of MYR260.3m will be achieved if 4Q15 prize payout ratio is back down to 63%, which is possible. While the 3Q15 earnings shortfall was largely due to higher-thanexpected prize payout ratio, we estimate that 3Q15 gross NFO revenue continued to ease 2% YoY.

We still see no reason to BUY Magnum.

Source: Maybank Research - 23 Nov 2015