MAGNUM: Earnings Outperform Estimates on Interest Savings Amidst Challenging Market

A recent investment bank research report indicates that while 9M25 core earnings surpassed expectations, the company continues to navigate a challenging market landscape. The positive performance for the cumulative nine months was largely driven by significant interest expense savings, even as quarterly results saw a decline.

Performance Review

For the nine months ended 3Q25, core earnings reached MYR140.5 million, marking a substantial 34.9% year-on-year increase. This figure comfortably exceeded the investment bank’s full-year estimates by 82.6% and closely aligned with consensus expectations at 77.6%. The primary driver behind this outperformance was a significant reduction in interest expenses during the latest quarter.

However, the third quarter of 2025 presented a softer picture. Revenue saw a 7.2% sequential decline quarter-on-quarter to MYR529.5 million, primarily attributed to fewer draws during the period. Despite this, revenue still posted a modest 2.6% year-on-year growth. Core earnings for 3Q25 experienced a notable drop of 54.7% quarter-on-quarter and 23.3% year-on-year, settling at MYR27.3 million. This quarterly decline was a result of both lower revenue and a higher prize payout ratio, which increased to 64.8% from 57.9% in 2Q25. The company declared a third interim dividend per share of 2 sen, bringing the year-to-date dividend to 7 sen, which met the bank’s expectations.

Operational Challenges

The report highlights several ongoing challenges that continue to cap the company’s upside potential. The pervasive presence of illegal number forecast operators (NFOs), both offline and online—especially within the 4D Classic segment—remains a significant and growing concern. These illicit activities are expected to continue eroding market share from legal operators. Furthermore, waning ticket purchases among younger demographics present another structural headwind. The company’s earnings momentum is also highly sensitive to ‘luck factors’ and potential shifts in government enforcement efforts against illegal NFOs.

Future Outlook and Valuation

Looking ahead, trading conditions are anticipated to remain tough as illegal activities persist. The investment bank has elected to keep its earnings estimates unchanged, despite the 9M25 outperformance, adopting a conservative stance due to the challenging operating landscape. The DCF-derived target price remains at MYR1.44, inclusive of a 6% ESG discount. This implies an 11.3x FY26F P/E, which is consistent with its five-year mean. The investment bank maintains a “Neutral” recommendation, citing that while strong dividend yields are appealing, the structural headwinds from illegal operators and demographic shifts continue to limit valuation upside.