Date of Report: October 17, 2024
Broker: Maybank Investment Bank Berhad
Overview
Magnum Berhad (MAG MK) is one of three national number forecast operators (NFO) in Malaysia, operating under the brand ‘Magnum 4D’ with 471 outlets. Despite the competitive environment, Magnum remains a prominent player with the highest sales per draw per outlet, attributed to its wealthier clientele. The company’s business is regulated, with a mature market that faces competition from illegal NFOs due to their higher prize payouts.
ESG (Environmental, Social, and Governance) Focus
Environmental Initiatives
Magnum Berhad’s environmental impact is minimal due to the nature of its business. However, the company has taken steps to address sustainability:
- Magnum aims to install renewable energy sources at 100% of owned office buildings by FY25.
- The company has committed to recycling 3,000kg of waste and planting 300 trees annually.
- Magnum has adopted a ‘paperless initiative’ to track and reduce paper consumption, using recycled and biodegradable materials for bet slips and ticket rolls.
Despite these efforts, Magnum has not yet reported its greenhouse gas emissions, and further improvements are required in waste management disclosure.
Social Impact
Magnum’s social initiatives focus on responsible gaming and community engagement:
- The company has a responsible gambling framework and has obtained certifications from the World Lottery Association.
- Magnum issues ‘Winner Handbooks’ to guide winners on managing their winnings responsibly.
- Their CSR initiatives have supported over 43,000 individuals, 3,500 students, and numerous welfare homes and NGOs.
- The workforce includes a significant female representation, with women making up 51% of employees, and the company aims to maintain at least 40% female representation in its workforce.
- Betting is restricted to non-Muslims over 21 years of age, with no credit extension to gamblers.
Governance
Magnum’s governance practices reflect its commitment to responsible management:
- The Board of Directors consists of seven members, with three being Independent Non-Executive Directors (INEDs), reflecting a 43% independence ratio.
- The company’s largest shareholder, Casi Management, is controlled by the Non-Independent Non-Executive Chairman, Tan Sri Dato’ Surin Upatkoon.
- Senior management remuneration is tied to achieving ESG targets, with a dedicated Sustainability Officer overseeing the framework.
- Despite previous issues with tax assessments, all disputes with the Inland Revenue Board (IRB) have been settled at significant discounts, and the IRB has agreed not to pursue similar claims.
Financial Performance
Earnings & Valuation
Magnum’s revenue and earnings are showing a steady recovery:
- Revenue increased by 6.3% in FY23 to MYR 2.16 billion, with forecast growth of 1% for FY24.
- EBITDA rose by 12.3% in FY23, and is expected to grow by 32% in FY24, supported by normalized prize payout ratios.
- Core net profit increased by 24.5% in FY23, with a forecasted growth of 41.9% for FY24, despite a rise in the Sales & Service Tax rate to 8%.
- The company maintains a robust dividend policy with a payout ratio above 80% and is projected to offer a net dividend yield of 7.7% for FY24.
Key Metrics
- P/E Ratio (FY24E): 9.5x
- P/BV Ratio (FY24E): 0.7x
- EV/EBITDA (FY24E): 6.1x
- Net Debt (End of 2Q24): MYR 547.8 million
Magnum’s strong financials are driven by stable revenue streams from its established network of outlets, careful management of operating expenses, and consistent dividend policies.
Strategic Outlook
Growth Opportunities
Magnum has set tangible targets for the future:
- Expansion of renewable energy across all its office properties by FY25.
- Focus on expanding its responsible gaming initiatives and increasing employee training.
- Strategic efforts to engage with regulators for more special draws, which could help boost tax revenue and increase sales.
- Potential to improve profitability through a better jackpot mix and reduced prize payout ratios.
Risks and Challenges
Magnum faces several challenges that could impact future performance:
- Illegal NFOs remain a significant competitive threat due to their higher prize payout ratios.
- Potential gaming tax hikes and changes in government policy could affect profitability.
- The company’s ESG progress, particularly on environmental disclosures, will be closely monitored by stakeholders.
Conclusion
Magnum Berhad’s performance has been resilient, with a focus on sustainability and responsible gaming. The company’s initiatives to improve its ESG standing, combined with a robust financial framework and clear strategic targets, position it well for future growth. However, addressing regulatory and competitive risks will be essential to sustaining its market leadership.
