Mainstream
Magnum strives to remain relevant
Lim Cian Yai 
The business is still absolutely feasible and we have a strong brand, says Magnum’s CEO Datuk Lawrence Lim Swee Lin
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The inability of number forecast operators (NFOs), Magnum Bhd and Berjaya Sports Toto Bhd (BToto), to keep pace with the sophisticated online betting offered by illegal NFOs has always been a thorn in their side.

Although both Magnum and BToto want to compete with illegal NFOs, they are not allowed by the authorities to offer online or mobile betting services. Interestingly, only Pan Malaysian Pools Sdn Bhd, another NFO player, is allowed to offer online betting.

Pan Malaysian Pools, privately owned by Genting CSR Sdn Bhd and several local tycoons, operates the Da Ma Cai (DMC) number forecasting games. It is governed by the Totalizator Board of Malaysia.

The Racing (Totalizator Board) Act 1961 allows operators to offer telephone betting services. However, DMC has evolved to extend its services via mobile phone and online platform. DmcGo, a mobile phone app from DMC, is the first and only legal lottery betting application in the country.

With the popularity of online betting from DMC and illegal NFOs, investors are concerned about the prospects of Magnum and BToto, whether they will be able to compete and remain relevant.

Should Magnum and BToto be denied the ability to offer mobile or online betting service, they want the authorities to immediately act against the illegal online NFOs.

For this to happen, the legal loopholes need to be amended to curb illegal online gaming. As a result, Magnum has no choice but wait for quick action to stop illegal operators.

On its part, unfortunately, Magnum has not come up with a clear defensive strategy to address the threat of the illegal NFOs. So far, the only action the company has embarked on is to rebrand itself so as to become more relevant and appealing to the younger generation.

How Magnum’s outlet would look like after the facelift


Rebranding exercise

Magnum is intrigued that where it is not present in some locations, illegal NFOs are seen to be operating actively. 

Despite the growth of illegal NFOs, Magnum CEO Datuk Lawrence Lim Swee Lin asserts that the brick-and-mortar model is still relevant and is here to stay.

“The business is still absolutely feasible. We are mindful that Magnum is still a strong brand among the public, and so the brick-and-mortar business is here to stay,” says Lim, explaining the rationale for the rebranding exercise. To this end, Magnum wants to ensure that the modernisation of its corporate image also resonates with its loyal middle-aged followers.

Under the rebranding exercise, some 480 Magnum outlets beginning with strategic geographical locations, will spot a new and refreshing façade.

The exercise, which began late last year, coincides with Magnum’s 50th anniversary this year. The cost is expected to run into millions of ringgit. 

“This is an investment that’s worth spending for the next two to three years. We will start with more densely-populated areas. Not all the 480 outlets are patronised by the same number of patrons. But it is also important for us to have ground presence in less-populated areas, as there is a limit in terms of how far customers are willing to travel to place a bet,” says Lim.

 

IRB’s tax bill challenge

Lim believes Magnum’s current business model can still provide good returns to its shareholders, despite the growing menace of illegal NFOs. Unfortunately, his optimism does not appear to strike a chord with Bursa Malaysia investors, who are closely watching its share price movements.

Magnum closed at RM1.83 on Jan 22, just a tad above its five-year low of RM1.70 in May 2017. At that time, investors were concerned over the news that the company was slapped with a hefty tax bill amounting to RM476.76 mil by the Inland Revenue Board (IRB).

The IRB then sent notices of assessment to the company, based on the grounds that it is disallowing its wholly-owned subsidiary Magnum Holdings Sdn Bhd to deduct interest and loan stock interest expenses for 2008 to 2013. Magnum, as the holding company, was also slapped with another tax bill disallowing it to deduct interest expenses for investments in year 2008 and for between 2011 and 2015.

Magnum is challenging the tax bill assessment through court action, which it filed in the Kuala Lumpur High Court last year. The company believes IRB’s grounds for the claims of the tax penalty are weak as IRB had ratified the tax shield at that point in time.

Some analysts expect Magnum to amicably resolve the issue by paying a much smaller penalty. “We maintain our view that Magnum has a high possibility of eventually needing to pay a much smaller penalty in an expected long-drawn-out court case,” UOB Kay Hian Research’s Vincent Khoo wrote in a research note last November. “We also understand that IRB’s claimable amount has been adjusted to below RM400 mil, versus the original claim of RM476 mil,” said Khoo.

After posting an unexpected 55% decline in earnings for the first quarter ended March 30, 2017, Magnum regained some lost ground with two subsequent bumper quarters with year-on-year growth of 174% and 15%.

For the cumulative nine months ended Sept 30, 2017, sales declined by 2.5%, but net profit was up 5.56% year-on-year to RM153.81 mil from RM145.7 mil. The decline in sales could be due to the growing popularity of illegal NFOs.

But the situation is not unique to Magnum. BToto also experienced a marginal 1.2% decline in sales to RM2.85 bil from RM2.89 bil for the first half of its financial year ended Oct 31, 2017.

 

 

 

 



This article first appeared in Focus Malaysia Issue 270.