Reduction in special draw will have minimal impact on Magnum

KUALA LUMPUR:Kenanga Research said Magnum Bhd's 1H18 net profit that came in slightly-below-expectations is not alarming as it was due to higher taxation. 

It said revenue and profit before tax are well on track to meeting estimates with fairly stabilised ticket sales. 

To recap, net profit in the first half of 2018 came in at 47% of its 1H2018 estimate at RM103mil but was within market consensus. 

"The slightly weaker-than-expected results were primarily due to higher effective tax rate of 30.6% vs. our FY18 assumption of 28%. In fact, at top-line and PBT levels, the results were
well within expectations at 50%/48% of FY18 estimates," it said.

Kenanga believes the impact of the reduction in the special draw for numbers forecast operators will be fairly minimal financially despite affecting market sentiment. 

"This is because there is a 10% special tax imposed on special draw which reduces operating margin to c.2% from c.11% for normal draw while special draw’s ticket sales are about 10%-20% lower than normal draw. 

"As such, should the 2019 special draw is reduced to 10 from 26 in 2017, FY19 estimates will be reduced slightly by less than 2%."

The research house added that the reintroduction of the Sales and Services Tax from Sept 1 will have a neutral impact to numbers forecast operations as it just replaces the Goods and Service Tax.

Kenanga maintained its outperform rating on the counter with a revised target price of RM2.25 per share from RM2.30 previously.