Numbers forecast operators’ core EPS could be hit

CGS-CIMB Research in a report said the EPS cut is reflected based on a potential MCO period of two months.

PETALING JAYA: Numbers forecast operators’ (NFOs) 2021 core earnings per share (EPS) could be hit by up to 27%, as a result of the operational disruptions caused by the reimplementation of the movement control order (MCO).

CGS-CIMB Equities Research in a report said the EPS cut is reflected based on a potential MCO period of two months.

“After conservatively baking in a potential two-month closure of NFO outlets in MCO areas, we have cut Berjaya Sports Toto Bhd’s (BToto) and Magnum Bhd’s 2021 core EPS by 27% and 23% respectively, partly buffered by the restoration to 22 special draws for 2021, from eight in 2020.

“We estimate that every month of the MCO extension beyond our current two-month base case assumption will dent BToto and Magnum’s 2021 core EPS by 10% and 12% respectively and discounted cash flow-based fair values by 0.5%.”

CGS-CIMB noted that BToto did not declare any dividend per share (DPS) for the first quarter of 2020, adding however that both BToto and Magnum had declared dividends during the second quarter of last year.

“Hence, we expect BToto and Magnum to declare dividends of two sen and 2.7 sen respectively in cash or shares in the first quarter of 2021, even if they report losses due to the MCO.”

Citing Bursa Malaysia filings, CGS-CIMB said Magnum had 570,000 treasury shares as at end-September 2020 (worth RM1.2mil), adding that the company has not bought back any ordinary shares since shareholders granted it authority to buy back up to 10% of its issued share capital in June 2020.

“BToto, meanwhile, had 15.2 million treasury shares as at end-October 2020 (worth RM31.3mil). It has also not bought back any shares since receiving shareholders’ approval in December 2020 to buy back up to 10% of its issued share capital.”

Treasury shares are previously outstanding stock that are bought back from stockholders by the issuing company.

According to CGS-CIMB, during the first MCO and conditional MCO period last year from March 18 to June 16, BToto and Magnum saw their NFO sales plunging 91% and 92% respectively quarter-on-quarter during the second quarter of 2020.

“However, the extent of their core net losses of RM44mil and RM24mil respectively was mitigated by the drop in NFO operating expenditure, of which we estimate between 90% and 95% is variable in nature.

“Post-reopening in mid-June last year, gross NFO sales quickly recovered to between 75% and 85% of pre-MCO levels between July and December 2020, resulting in a turnaround in BToto’s and Magnum’s third quarter 2020 core net profits quarter-on-quarter to RM72mil and RM30mil respectively.

“In comparison, for casinos, Genting Malaysia continued to post losses in the third quarter of 2020 due to a slower recovery in visitor arrivals (due to reduced operating capacity and social distancing effects) and a higher fixed cost structure.”

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