After nine quarters of earnings disappointment, Magnum’s 2Q23 results met RHB Research (RHB) expectations, mainly due to a lower prize payout. Its 2 sen DPS is also an improvement from previous quarters, likely due to the improved earnings and political environment.
“Although ticket sales recovery remains slow, we think the stock is worth holding for its 7% FY24F yield. Current valuations have factored in the slow recovery,” said RHB in the recent Malaysia Results review.
Magnum’s 2Q23 core net profit of RM41m brings 1H23 core net profit to RM62m, making up 60% of RHB’s FY23 estimates and 40% of Street’s.
Magnum’s gaming revenue remained at 80% of the 2019 average, similar to previous quarters.
However, after numerous quarters of above-long-term-average prize payouts of 63-66%, its prize payout ratio has softened to 62.5%, meaningfully lifting profitability. While revenue fell 2% QoQ, the better luck in 2Q23 helped lift its net profit by 93%.
In the three states (Selangor, Penang, and Negri Sembilan) that house 33% of Magnum’s total outlets, the political status quo means the company can operate business as usual, and not have to fear outlet closures like it faced in Kedah.
“We believe this diminished uncertainty reduces Magnum’s need to hold cash, and could lead to improved dividend payout – potentially expediting the normalisation of its dividend per share,” said RHB.
That said, with increasing conservative political influence in Selangor – where Magnum houses 18% of its total outlets – RHB thinks investors will keep a close eye on this going into future elections.
“We stay Neutral, as despite its improved dividend outlook, we remain cautious on Magnum’s ticket sales recovery and high prize payout ratio. For meaningful ticket sales recovery and growth, Magnum would need the legalisation of online gaming and/or stricter regulations against illegal number forecast operators,” said RHB.
Risks identified by RHB include the faster or slower ticket sales recovery, higher or lower dividend payout, changes to gaming taxes and the luck factor.
