NUMBER forecast operator (NFO) Magnum Bhd may see its ticket sales impacted by the re-imposition of movement control order (MCO 2.0) in 1Q 2021 but this interestingly, this can be partially offset by additional special draw days.
Nevertheless, UOB Kay Hian Research expects NFOs to be allowed to hold 14 extra special draw days this year, thus culminating in more than 10 replacement draw days in 2021 to help shore up badly-needed revenues for the Government.
Recall that NFOs are closed for about one month in various states excluding Sarawak under the re-imposed MCO which largely reduced ticket sales for 18 draw days in 1Q 2021.
“Should NFOs receive the nod for replacement special draw days, the incremental profits to Magnum would not be significant, but it would nevertheless validate Magnum’s existence and importance to government revenues,” opined head of research Vincent Khoo in a results review.
For its 1Q FY2021, Magnum posted a 87% year-on-year (yoy) dip in its net profit to RM7.34 mil (1Q FY2019: RM56.06 mil) while its revenue retreated 37% yoy to RM383.88 mil (1Q FY2019: RM609.54 mil).
While Magnum’s ticket sales have recovered to about 80-85% of pre-MCO levels in 1Q 2021, UOB Kay Hian Research expects ticket sales to sustain at this level for the whole of 2021 with the lower yoy comparison after factoring lower patronage from migrant workers.
“Complete sales recovery would require borders reopening and elimination of the cumbersome SOP requirements for punters,” observed the research house.
At any rate, a key catalyst for Magnum could be the monetisation of its 6.3% stake in mobile network U-Mobile which is seeking an initial public offering (IPO) to raise US$500 mil.
“The successful monetisation of its 6.3% stake in U-Mobile (book value of RM270 mil or 7% of its market cap) could fetch RM400 mil, representing 14% of its market cap,” projected UOB Kay Hian Research.
“In a hypothetical IPO scenario, it is envisioned that Magnum may dish out its U-Mobile shares in dividend in specie to its shareholders. Note that U-Mobile has turned EBITDA (earnings before interest, taxes, depreciation, and amortisation) positive and has roughly 10% market share of the country’s mobile subscriptions.”
All-in-all, the research house retained its “buy” rating on Magnum with a lower DCF (discounted cash flow)-based target price of RM2.45 (previously RM2.55).
“Magnum has a defensive business and its prospective 2022 dividend yield of more than 7% is attractive in the current low interest rate environment,” added UOB Kay Hian Research.
At 11.52am, Magnum was down 1 sen or 0.49% to RM2.04 with 285,500 shares traded, thus valuing the company at RM2.93 bil. – May 20, 2021
