Magnum Bhd

MAGNUM (Fundamental: 1.7/3, Valuation: 1.4/3) is best-known for its 4-digit numbers forecast games including Magnum 4D and 4D Jackpot and the latest addition, 4D Jackpot Gold that was introduced in November 2014.

In recent years, Magnum has been adversely affected by growing competition among the key players as well as from illegal operators. Rising government taxes encourage consumers to shift their bets to illegal operators, which offer higher prize payout structure. As a result, its gaming revenue has been in gradual decline — by between 3.2% and 3.5% per annum — from RM3.30 billion in 2010 to RM2.89 billion in 2014. 

Looking forward, sales are likely to be dampened further by weaker consumer sentiment, including the expected negative impact from the implementation of GST, whether it is absorbed by the company or passed on to consumers. 

For its part, Magnum intends to mitigate the revenue decline with its latest game of 4D Jackpot Gold and to enhance its marketing, products and distribution strategies. 

Positively, whilst the operating environment will remain challenging, investors can still count on higher-than-market average yields. Indeed, Magnum has been pushing its payout higher.

Dividends have increased from 6.75 sen per share in 2010 to 18.75 sen in 2013 and 20 sen per share in the latest financial year. At current price of RM2.72, this translates into an attractive net yield of 7.4%.

Cashflow from operations is relatively resilient with minimal expected capex. Balance sheet is healthy with gearing of 18.9%. This should support Magnum’s dividend policy, of at least 80% of gaming profits. The stock is trading at about 1.6 times its book value.

As a comparison, Berjaya Sports Toto has a gearing of 27.8% and it paid dividends totalling 17 sen per share for FYApril2014, which translates into a net yield of 5.2% at the current price of RM3.29.

This article first appeared in The Edge Financial Daily, on June 9, 2015.