PETALING JAYA: The lifting of movement restrictions and the reopening of economic activities have not translated to a recovery in earnings to pre-Covid 19 levels for Magnum Corp Bhd.
Moving forward, the number forecast operator (NFO) will have to contend with competition from illegal operators, which have “become an even bigger bane in the post-Covid world”, said Maybank Investment Bank (Maybank IB) Research.
The research firm, in its note to clients, noted that Magnum’s earnings for the second quarter of financial year 2022 (2Q22) had missed its expectations yet again.
“The 2Q22 core net profit of RM26.3mil, which brought its first half earnings to RM42.9mil, was just 22% of our financial year (FY22) estimate.
“On closer inspection, the recovery in gross NFO sales/draw has been weaker than we expected, despite life returning to near normal,” Maybank IB Research noted.
The second interim dividend per share (DPS) of 1.5 sen, which brought year-to-date DPS to 2.5 sen, also fell short at 19% of the research firm’s FY. estimate. The shortfalls were due to the higher-than-expected 1H22 estimated prize payout ratio of 66% versus the research firm’s forecast of 62%.
“In the long term, the prize payout ratio should average at our forecast of 62%. We estimate that 2Q22 gross NFO sales/draw came in at 71% of 2Q19 levels.
“This was only marginally better than 1Q22 gross NFO sales/draw which was at 65% of 1Q19 levels,” said the research firm.
Maybank IB Research had expected Magnum to stage a much stronger recovery in 2Q22 as Malaysia reached the endemic stage of Covid-19 and relaxed most of the pandemic-related restrictions in the quarter.
According to the research firm, it also understood the lockdowns during the pandemic enabled illegal NFOs to wrest punters from legal players like Magnum.
Following the weak 2Q22 numbers, Maybank IB Research has cut Magnum’s earnings and dividend estimates for FY23 and FY24 by 14% and 35%, and downgraded the stock to a “hold” from a “buy” previously.
As for the stock’s target price, Maybank IB Research has lowered it to RM1.58 from RM2.43.
