Introduction

This article delves into the financial performance and future outlook of Magnum Bhd as reported by UOB Kay Hian on November 22, 2024. Magnum Bhd, a number forecasting operator, presents an intriguing investment opportunity with its defensive business model and attractive dividend yields.

Company Overview

Magnum Bhd, listed under the consumer discretionary sector, operates as a number forecasting operator. The company’s stock, traded under the ticker MAG MK, has shown resilience with a market capitalization of RM1,739.0 million. Despite a challenging economic landscape, Magnum Bhd maintains a strong presence with 1,437.2 million shares issued.

3Q24 Financial Performance

In 3Q24, Magnum’s results did not meet expectations, with gaming revenue flat year-on-year, approximately 79% of pre-pandemic levels. Despite a reduction in draw days, Profit Before Tax (PBT) saw improvement due to normalized prize payouts from the high levels in 3Q23. However, overall earnings experienced a decline due to increased tax expenses. On a positive note, Magnum declared a higher dividend, highlighting its appeal with a potential U-Mobile stake monetization and a dividend yield of about 8% for 2025.

Detailed Financial Metrics

The company’s 3Q24 revenue was recorded at RM516 million, with a marginal year-on-year decline of 0.9%, and a significant quarter-on-quarter decrease of 14.3%. The core net profit stood at RM29.3 million, reflecting a 1.8% year-on-year decrease and a 36.1% quarter-on-quarter drop. This underperformance was attributed to higher tax expenses, with the core net profit accounting for only 68% and 69% of UOB Kay Hian and consensus forecasts, respectively.

Magnum declared an interim dividend per share (DPS) of 1.5 sen in 3Q24, up from 1 sen in 2Q23, resulting in a total 9M24 DPS of 5 sen. This translates to a 4.1% yield and a 71% payout ratio, underlining the company’s commitment to returning value to shareholders.

Key Financial Projections

Looking ahead, Magnum’s key financial projections indicate a steady growth trajectory. The net turnover is expected to rise from RM2,160 million in 2023 to RM2,475 million by 2026. EBITDA is projected to grow from RM219 million in 2023 to RM276 million in 2026, while net profit is anticipated to increase from RM118 million to RM176 million over the same period. The company’s earnings per share (EPS) is forecasted to grow from 8.2 sen in 2023 to 12.2 sen in 2026.

Market Position and Strategic Initiatives

Magnum’s classic 4D and jackpot ticket sales demonstrated strength year-on-year, with an estimated 1% increase in classic 4D ticket sales per draw in 3Q24. Jackpot sales saw a notable improvement, with a 16% year-on-year rise due to a longer jackpot run. The more lucrative jackpot games accounted for approximately 24.1% of total gaming revenue, up by 2.4 percentage points from the previous year.

The company anticipates a sequential recovery in lottery ticket sales, projecting a return to 90-95% of pre-pandemic levels by 4Q24-1H25. Magnum’s market share, previously impacted by illegal operators, is expected to recover as authorities intensify raids on illegal bookies. Additionally, potential amendments to the online gaming act could allow Magnum to operate through mobile applications, serving as a strong growth catalyst.

Valuation and Investment Recommendation

Magnum is currently trading at attractive valuations, close to pandemic lows, with a projected 2025 PE of 10x, below the NFO sector’s five-year mean of 12-13x. These valuations, combined with the company’s low beta, defensive business nature, and steady cash flow, make it appealing to risk-averse investors. The company’s earnings resilience and prospective dividend yields of 6.2-8% in 2024-25 further enhance its attractiveness.

A potential monetization of Magnum’s stake in U-Mobile, anticipated as early as 1H25, serves as a key re-rating catalyst. U-Mobile’s listing through an IPO could fetch Magnum approximately RM630 million or RM0.44 per share, representing 36% of its current market cap. Magnum may distribute special dividends or shares in specie upon monetization, potentially translating to a yield of up to 36%.

UOB Kay Hian reaffirms a “BUY” recommendation for Magnum, albeit with a slightly reduced target price of RM1.55, reflecting adjustments for higher tax expenses. The target price implies a 13x 2025 PE, aligning with the mean.

Environmental, Social, and Governance (ESG) Efforts

Magnum is committed to ESG principles, as evidenced by its initiatives. Environmentally, the company promotes sustainability by providing over 300 employees with indoor potted plants and implementing a plastic-free week. Socially, Magnum has attained the World Lottery Association’s Responsible Gaming Level 2 Certification and has donated to more than 240 non-government and non-profit organizations. In terms of governance, Magnum adheres to the Malaysian Code on Corporate Governance (MCCG).

Conclusion

Magnum Bhd presents a compelling investment case with its stable financial performance, strategic growth initiatives, and strong commitment to ESG principles. The company’s potential for capital upside, driven by U-Mobile stake monetization and legislative changes in online gaming, positions it favorably for future growth. Investors looking for a resilient and dividend-yielding stock should consider Magnum as a viable option.