THAT gambling is indeed addictive best explains why the number forecast operator (NFO) business has proven to be resilient even amid a pandemic-stricken economic environment.
In this regard, RHB Research is upbeat on Magnum Bhd’s strong ticket sales recovery with lottery ticket sales now at circa 80-85% of pre-movement control order (MCO) levels compared with the circa 45-50% recorded in the first few weeks after the NFO outlets re-opened on June 17.
“Most states in Malaysia are now under conditional MCO (CMCO) restrictions, but NFO outlets remain open,” wrote analysts Loo Tungwye and Lee Meng Horng in a company update.
“We understand that the impact of this second CMCO has been minimal – which reaffirms our view that NFO demand is inelastic.”
On the enforcement front, RHB Research noted that Magnum has benefitted from active enforcement efforts with sales per draw in FY2018-2019 having risen by circa 3-9% year-on-year after multiple years of decline.
“Stricter laws, with stiffer penalties on illegal operators and gamblers would further benefit Magnum,” opined the research house.
“Currently, the illegal gambling market is around one to two times the size of the legal market, thus providing ample opportunities for legal operators to claw back market share.”
Moving forward, RHB Research likes Magnum Bhd for its resilient lottery business alongside the company’s handsome 7.2% FY2021F dividend yield which should prove attractive for long-term investors.
“Magnum’s FY2021F dividend yield of 7.2% is attractive, and presents an opportunity for long-term yield-seeking investors to accumulate the stock,” projected RHB Research.
“This counter is still our preferred pick in the NFO space for being a pure play that is expected to benefit from the on-going efforts to police illegal gambling.”
Further upside to the research house’s forecasts could come from potential replacement draws in 2021, and the legislation of stricter gambling laws.
Deeming Magnum as its preferred NFO pick, RHB Research maintained its “buy” rating on the company with a higher target price of RM2.66 (from RM2.60 previously).
At 12.30pm, Magnum was down 2 sen or 0.9% at RM2.19 with 215,200 shares traded, thus valuing the company at RM3.15 bil. – Nov 18, 2020
