Sunday 14 Jul 2024
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KUALA LUMPUR (Aug 5): In spite of temporary closure throughout Phase 2 of the National Recovery Plan (NRP) and its adverse impact on near-term earnings, RHB Research is positive on numbers forecast operators (NFOs) Berjaya Sports Toto Bhd (BToto) and Magnum Bhd for their promising recovery after reopening.

In a note today, RHB Research analysts Loo Tungwye and Lee Meng Horng said ticket sales should recover strongly once outlets reopen, as evidenced historically, given the fairly inelastic nature of the businesses. BToto and Magnum’s low operating cost structures should partially mitigate the negative impact.

The analysts recalled strong recovery of ticket sales as seen in the second half of 2020 (2H20) when the Movement Control Order (MCO) ended as well as the recovery of ticket sales by circa 80% within three months.

They believed the earliest re-opening date will be when the country reaches Phase 3, which is targeted to be around September.

“As such, we cut our FY21F-23F earnings for Magnum by 74.9% to 3.8% after reducing our draw days assumption by 61 days, as we assume the NFO outlets will remain closed until end September, while factoring in a slightly longer period to reach 100% of pre-pandemic levels post re-opening.

“Consequently, we lower our FY21F dividend per share to four sen from nine sen, as management will likely be prudent in managing cash flow,” the analysts said.

For BToto, the analysts cut FY21-23 forecasted earnings by 14.7%, 48.7%, and 2.7%, respectively, after reducing their FY21 to FY22 forecasted draw-days assumption by 16 to 45 days. FY21-22 forecasted DPS was shaved to eight sen to 12 sen from 10 sen to 16 sen on the same assumption.

They noted that when all NFO outlets were closed for three months, Magnum only registered a core loss of RM24 million in 2Q20, circa 10% of FY19 earnings.

Meanwhile, BToto’s low operating expenses of circa RM10 million to RM15 million per month should partially mitigate the impact of the closures.

“As for its UK motor segment, business is operating as usual, with all physical showrooms re-opened since July’s lifting of restrictions,” the analysts added.

Loo and Lee maintained their “buy” calls on Magnum and BToto but tweaked their target prices (TPs) to RM2.61 (from RM2.73) and RM2.23 (from RM2.34), respectively.

“As a pure-play NFO, Magnum remains our preferred pick. Further earnings upside could come from the legislation of stricter gambling laws and potential monetisation of its stake in U-Mobile,” they said, citing “luck factor, changes in gaming taxes, and regulatory risks” as key risks to their call.

For BToto, further upside could come from ongoing efforts to clamp down on illegal gambling.

“While there are risks from the possible non-renewal of its Philippines Gaming Management Corp associate’s lottery equipment lease agreement and the Philippines’ recent lockdown, the impact to our forecast is minimal at less than 3%,” the analysts said.

Shares of Magnum rose two sen to RM1.99 in morning trade after falling 13.5% from RM2.30 on March 11, while Berjaya Sports Toto’s share price slipped two sen to RM1.93.

Magnum has a market capitalisation of RM2.86 billion while BToto's is RM2.62 billion.

Edited BySurin Murugiah
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