Magnum Berhad

$MAGNUM / 3859 (MAGNUM BERHAD)

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🔹 Being our NFO top pick within the gaming sector, Magnum’s share price surged 15% in the last one month from RM1.18.

🔸 This presumably reflects recovering dividends payout in tandem with higher ticket sales, besides lingering potentialof U-mobile’s stake monetisation.

🔹 To recall since July 2024, it was said that Maxis has expressed interest in U Mobile and talks are at an early stage.

🔸 The article also says that pricing could be a hurdle to a potential buyout, with U Mobile’s owners seeking a valuation of more than RM10 billion, and there’s no guarantee that a deal will be reached.

🔹Tan Sri Vincent Tan later on said U Mobile was rejecting the buyout offer and planning to file for an IPO.

🔸 To recall, Magnum has 6.3% stake in U-Mobile (book value of RM270m, or 16% of its market cap). If U-Mobile’s IPO is valued at RM10b, Magnum has the potential to fetch c. RM630m or c.RM0.44/share if they are able to monetise their stake, which represents c.32% of their current market cap.

🔹 In a scenario of successful monetisation, Magnum may dole out special dividends. A full payout of these windfall gains may translate up to 32% yield.

🔸 Alternatively, the group may pare down borrowings significantly with the proceeds, and turn into net cash position. To note, Magnum currently has RM776.4m borrowings and RM155.7m cash. This may take away finance cost of c.RM37-40m/year, and adds RM26-28m to 2025-26F net profit (+11-12%).

🔹 Given that Magnum pays out >90% of earnings as dividends, this could increase prospective yield to >10% for 2025-26F. Magnum’s NTA will also increase from current RM1.69 to RM2.13.

🔸 Maintain BUY with unachanged target price of RM1.56, which implies 13x 2025F PE (mean).

🔹 Reiterate Magnum as our “defensive but not passive” pick with lush dividend yield and event catalysts.

$MAGNUM / 3859 (MAGNUM BERHAD)
Research by RHB

$MAGNUM / 3859 (MAGNUM BERHAD)
Research by MAYBANK

$MAGNUM / 3859 (MAGNUM BERHAD)
Research by Maybank

$MAGNUM / 3859 (MAGNUM BERHAD)
Research by Maybank
Buy - TP RM1.34

"Nice turn of luck for a change"

2Q24 earnings/dividends were within/below our expectations. Positively, 2Q24 gross NFO sales/draw/outlet hit a post-COVID high, albeit, thanks to a long jackpot run. We maintain our estimates, BUY call and MYR1.34 DCF-TP for now as we wait and see if the aforementioned feat can be repeated. A key near term lookout is the potential disposal/listing of U Mobile which we estimate may add >MYR0.15/share to our DCF-TP.

Analyst:
Yin Shao Yang
samuel.y@maybank-ib.com

$MAGNUM / 3859 (MAGNUM BERHAD): A Major Beneficiary of U Mobile's Listing

I've previously discussed U Mobile and Magnum in several posts, which you can refer to for more background. In this post, I'll focus on the latest developments.

In the most recent update, Magnum holds a 7.84% stake in U Mobile, which differs from earlier information. U Mobile is currently the third-largest mobile telecommunications service provider in Malaysia, with approximately 6 million users. Its main competitors include $KLSE-CDB, $MAXIS / 6012 (MAXIS BERHAD), and Yes (under YTL Communications).

Last month, reports surfaced that Maxis was considering a buyout of U Mobile, with U Mobile's owners seeking a valuation exceeding RM10 billion. However, new reports indicate that U Mobile has rejected the buyout offer and is planning an initial public offering (IPO). U Mobile is backed by several strong parties (refer to earlier posts for details), and shareholders are aiming for a valuation between RM9 billion and RM11 billion.

Given this valuation range, Magnum's 7.84% equity stake in U Mobile would be worth between RM706 million and RM862 million, representing approximately 39.7% to 48.4% of Magnum's market cap. It appears that the full value of U Mobile has yet to be fully realized, as Magnum is currently trading at a P/E ratio of 13.11, which is typical for the company and higher than Sports Toto's ($KLSE-SPTOTO) single-digit P/E ratio.

In conclusion, the listing of U Mobile is likely to provide a positive outlook for Magnum, as the company's hidden value is finally being unlocked.

Related articles:
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2. https://cutt.ly/Xecs58RE

U Mobile's Corporate Ownership

U Mobile, Malaysia's third-largest telecommunications company, is expected to file for an IPO soon. However, given the current market volatility, it's uncertain whether the IPO will be postponed again. Regardless, now is an opportune time to examine the company's ownership structure. Due to varying information online, The Malaysianist has provided a useful summary.

Interestingly, despite the common association of U Mobile with Tan Sri Vincent Tan, he is not the largest shareholder. The primary shareholder is Straits Mobile Investments Pte Ltd from Singapore, which is owned by Temasek Holdings. The second-largest shareholder is the current Yang di-Pertuan Agong, Sultan Ibrahim. Tan Sri Vincent Tan follows, holding a 15.4% stake.

Surprisingly, $MAGNUM / 3859 (MAGNUM BERHAD) is also among the major shareholders of U Mobile, along with Tan Sri Paul Koon Poh Keong, the owner of $PMETAL / 8869 (PRESS METAL ALUMINIUM HOLDINGS BERHAD), who holds a 2.4% stake in the company.

Put money in bank no use
Go gamble at $GENM / 4715 (GENTING MALAYSIA BERHAD) $BJTOTO / 1562 (BERJAYA SPORTS TOTO BERHAD) $MAGNUM / 3859 (MAGNUM BERHAD)
If Recession coming, People sad, need drink more
$CARLSBG / 2836 (CARLSBERG BREWERY MALAYSIA BERHAD) $HEIM / 3255 (HEINEKEN MALAYSIA BERHAD)
Lets gooooo

Increased M&A and Privatization Activity?

With the expected improvement in market sentiment, merger and acquisition activities are becoming more noteworthy.

Recently, there has been a noticeable uptick in M&A and privatization proposals in the market.

UOB Kay Hian Research suggests that current market conditions are conducive to more corporate activities related to M&A and unlocking asset value.

A long-anticipated example is the potential IPO of U-Mobile. There have been persistent rumors about U-Mobile going public for years, and with the current market being more active and favorable, the likelihood of its IPO may be higher. If successful, one of its shareholders, $MAGNUM / 3859 (MAGNUM BERHAD), would benefit.

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Changes in Director's Interest (Section 219 of CA 2016) - MADAM NG SIEW HONG

DEALINGS IN LISTED SECURITIES (CHAPTER 14 OF LISTING REQUIREMENTS) : Dealings Outside Closed Period

Will $MAGNUM / 3859 (MAGNUM BERHAD) become the next privatisation target?

$MAGNUM / 3859 (MAGNUM BERHAD) primarily focuses on its licensed lottery business, including 4-Digit numbers forecast betting and various gaming options. As per its FY23 annual report, the company operated 485 sales outlets across Malaysia, but 14 outlets in Kedah (13) and Perlis (1) were closed due to expired trading licenses.

In FY23, MAGNUM saw a revenue increase of 6.4%, totaling RM2.16 billion, with a 17.9% rise in Profit Before Tax (PBT) to RM188.43 million. Despite this growth, management highlighted industry challenges, notably from illegal operators hindering revenue potential due to lax regulations.

Of note, MAGNUM is also owned by Tan Sri Surin. Given the uncertain business landscape, speculation arises whether it might follow MPHBCAP in privatization.

MAGNUM ranks as the second-largest lottery operator in terms of market capitalization, trailing only $KLSE-SPTOTO. Tan Sri Surin's ownership of 36.714% of the company shares, while substantial, falls short of the majority needed to trigger privatization. Despite no recent announcements of share purchases, it doesn't discount the possibility of MAGNUM becoming his next target.

With a track record of successfully privatizing $MWE / 3921 (MWE HOLDINGS BERHAD), speculation arises regarding MAGNUM's potential. Tan Sri Surin's past criteria for privatization typically involve companies with high Net Tangible Assets (NTA). Comparing examples like MWE, where the NTA was RM2.41 and the privatization price was RM1.75, reflecting a 37.7% discount, and $MPHBCAP / 5237 (MPHB CAPITAL BERHAD), with an NTA of RM2.40 and an offer price of RM1.70 (a 41.2% discount), $MAGNUM / 3859 (MAGNUM BERHAD)'s NTA of RM1.69 suggests a potential privatization offer of RM1.21, yielding a mere 6% upside from the current share price.

However, MAGNUM's NTA may underestimate its true value, given that its assets haven't been evaluated in years, some not for decades, as indicated in its annual report. The untapped value of its stake in U-Mobile fuel speculation among investors about MAGNUM's privatization potential.

Overall, the primary stage of bullish market present the last ripe opportunities for major shareholders to privatize companies inexpensively. Given Tan Sri Surin's ties to MAGNUM and MPHBCAP, delving into their histories unveils intriguing narratives, particularly concerning their past affiliations with MCA as Multi-Purpose entities.

General Meetings: Outcome of Meeting

$MAGNUM / 3859 (MAGNUM BERHAD)
Research by RHB
Neutral – TP RM1.08

“An Unlucky Start To The Year"

Maintain NEUTRAL and DCF-derived MYR1.08 TP (9% downside). Magnum’s 1Q24 earnings fell short of expectations due to an unfavourable luck factor. We think the current valuation (close to the mean) is fair, and the stock lacks re-rating catalysts for earnings and valuation to reach new highs. Nonetheless, number forecast operators (NFOs) should maintain a high degree of defensiveness due to the relatively inelastic demand from punters, and the decent 5% yield.

Analysts:
Tai Yu Jie
tai.yu.jie@rhbgroup.com
Lee Meng Horng
lee.meng.horng@rhbgroup.com

$MAGNUM / 3859 (MAGNUM BERHAD)
Research by Maybank
Buy – TP RM1.34

“Unlucky start to the year"

High prize payout ratio caused 1Q24 earnings and dividends to underperform our expectations. Revenue was, however, in-line with our expectations. While NFO sales/draw/outlet is recovering, albeit gradually, we note that it is trailing its main competitor. Given that it is still early in the year, we maintain our earnings estimates, BUY call and MYR1.34 DCF-TP. That said, we prefer SPTOTO for its more consistent earnings and dividends delivery.

Analyst:
Yin Shao Yang
samuel.y@maybank-ib.com

$MPHBCAP / 5237 (MPHB CAPITAL BERHAD): Privatization in Progress

Background:

- MPHBCAP has received a privatization proposal at RM1.70 per share from its primary stakeholder, Tan Sri Surin Upatkoon.
- Upatkoon intends to delist the company through a selective capital reduction amounting to RM748.11 million, opting out of maintaining its listing status.
- Presently, Upatkoon and his family collectively hold a 43% stake in MPHB.
- Additionally, Upatkoon is a major shareholder of $MAGNUM / 3859 (MAGNUM BERHAD).

Likelihood of Success:

- Drawing from past events, Upatkoon successfully privatized $MWE / 3921 (MWE HOLDINGS BERHAD) in 2018 using a similar method, involving a selective capital reduction and a corresponding cash repayment of RM1.75 per share.
- However, it's notable that Upatkoon's first attempt to privatize MWE in 2015, offering RM1.70 per share, was unsuccessful.
- Comparing the current situation with MWE's privatization, where the company's net tangible assets (NTA) were RM2.40 and the privatization price was RM1.70, representing a 41% discount, investors might be wary of a similar outcome.
- Considering the previous privatization of MWE, where the NTA was RM2.41 and the privatization offer was RM1.75, it appears that the market is showing some skepticism, possibly anticipating a higher offer from Upatkoon.

Valuation:

The current share price of RM1.62 versus the privatization offer of RM1.70 translates to only a 4.9% discount. When factoring in brokerage fees and other expenses, the attractiveness diminishes.

[This is not a recommendation to buy or sell, but solely for educational purposes.]

KUALA LUMPUR: Magnum Bhd witnessed a robust surge in its first-quarter net profit, soaring by 64.71 per cent to nearly RM26 million from RM15.78 million in the preceding year, driven by stronger earnings from its investment holdings division. 

© New Straits Times Press (M) Bhd

First Interim Dividend

Quarterly rpt on consolidated results for the financial period ended 31/03/2024

$MAHSING / 8583 (MAH SING GROUP BERHAD)
$OSK / 5053 (OSK HOLDINGS BERHAD)
$ASTRO / 6399 (ASTRO MALAYSIA HOLDINGS BERHAD)
$MAGNUM / 3859 (MAGNUM BERHAD)
$TSH / 9059 (TSH RESOURCES BERHAD)

Statement In Relation To The Proposed Renewal Of The Authority For Magnum Berhad To Purchase Its Own Shares dated 30 April 2024

General Meetings: Notice of Meeting

Annual Report & CG Report - 2023

Some Monopoly/Duopoly sectors in Malaysia

1. Casino 🎰
$GENTING / 3182 (GENTING BERHAD) holds the exclusive casino operating license in Malaysia, dominating the market for over 59 years. Similarly, the lottery sector is controlled by just three companies: $MAGNUM / 3859 (MAGNUM BERHAD), $KLSE-SPTOTO, and Da Ma Cai.

2. Rice Import 🌾
Bernas, a subsidiary of Tradewinds owned by Syed Mokhtar, holds the sole permit for rice imports.

3. Sugar Supply 🍬
The recent surge in beverage prices, influenced by a government-imposed sugar tax. But do you know $MSM / 5202 (MSM MALAYSIA HOLDINGS BERHAD) isn't the only sugar supplier in Malaysia? It has competitor, which is Central Sugars Refinery Sdn Bhd (CSR) owned by Tradewinds. MSM commands around 60% of the market , while CSR covers the remaining 40%.

4. West Malaysia Electricity 💡
While $TENAGA / 5347 (TENAGA NASIONAL BHD) supplies electricity to West Malaysia, East Malaysia has separate providers. Sabah Electricity, 80% owned by TNB and 20% by the Sabah government, serves Sabah. In Sarawak, electricity is supplied by Sarawak Energy Berhad, a company owned by the Sarawak government.

5. Stock Exchange 💱
$BURSA / 1818 (BURSA MALAYSIA BERHAD) is the sole exchange in Malaysia, in contrast to the United States, which has three exchanges. Therefore, it holds a monopoly over the market.

6. Vehicle Inspection 🚗
Puspakom, under the ownership of DRBHCOM, holds the exclusive license for vehicle inspection in Malaysia. This means that commercial vehicle inspections every six months and second-hand car inspections can only be conducted at Puspakom. However, its monopoly status appears to be coming to an end.

7. Airport Operation 🛫
AIRPORT is the sole airport operator in Malaysia, overseeing approximately 39 airports in the country. Additionally, it manages airports in Turkey, India, and Cambodia.

8. Government Medical Supply 💊
PHARMA is the exclusive medicine supplier for the Ministry of Health (MOH). However, its financial performance has been poor recently, leading to its classification under PN17. If the situation deteriorates further, its monopoly may be compromised.

OTHERSProposed Renewal of the Authority for Magnum Berhad ("Magnum" or "the Company") to purchase its own shares ("Proposed Share Buy-Back Renewal")

$MAGNUM / 3859 (MAGNUM BERHAD)
Research by RHB
Neutral (Maintained) – TP of MYR1.08

“Still Awaiting Positive Catalysts”

We met with management recently to discuss the latest outlook for the number forecast operator (NFO) sector. We reiterate our call, premised on a lack of catalysts despite the stock offering an element of defensiveness. This is on Magnum’s yields and relatively inelastic demand from punters – on top of the potential monetisation of its U Mobile stake, which may provide an additional 12% upside to our TP if a MYR10bn valuation can be realised.

Analyst(s):
Tai Yu Jie
tai.yu.jie@rhbgroup.com
Lee Meng Horng
lee.meng.horng@rhbgroup.com

CONSUMER CYCLICAL - GAMING
$BJTOTO / 1562 (BERJAYA SPORTS TOTO BERHAD) $MAGNUM / 3859 (MAGNUM BERHAD)
Research by RHB
Neutral (Maintained)

“4Q23 Wrap: Bumpy Road To Recovery”

We believe the NFO stocks under our coverage should have high defensiveness, thanks to their dividend yields (5-7%) and the relatively inelastic demand from punters. That said, we think the current market valuations (close to mean levels) are fair, and the sector lacks re-rating catalysts for their earnings and valuations to reach new highs. We prefer Sports Toto (SPTOTO) on valuation grounds and its superior dividend yield.

Analyst(s):
Tai Yu Jie
tai.yu.jie@rhbgroup.com
Lee Meng Horng
lee.meng.horng@rhbgroup.com

$MAGNUM / 3859 (MAGNUM BERHAD)
Research by RHB
Neutral (from Sell) – TP of MYR1.13

“Solid End To FY23; Upgrade To NEUTRAL”

U/G to NEUTRAL from Sell, new MYR1.13 TP (DCF) from MYR0.90, 2% downside. FY23 earnings and dividends exceeded our expectations, due to our previous conservative forecasts. We upgrade our recommendation as we see limited downside to valuations after lifting our forecasts. We believe number forecast operators (NFOs) will see a high degree of defensiveness thanks to the yields and relatively inelastic demand from punters.

Analyst(s):
Tai Yu Jie
tai.yu.jie@rhbgroup.com
Lee Meng Horng
lee.meng.horng@rhbgroup.com

MAGNUM - Notice of Book Closure

Quarterly rpt on consolidated results for the financial period ended 31/12/2023 (Amended Announcement)