This article first appeared in The Edge Financial Daily on September 24, 2018

Magnum Bhd
(Sept 21, RM1.93)
Upgrade to buy with an unchanged target price (TP) of RM2.05: Although we have remained cautious about Magnum Bhd’s earnings prospects, we are turning positive on the stock given that: i) its value has emerged following recent price weakness; and ii) its RM148 million settlement of tax liabilities with the Inland Revenue Board, without impacting its ability to pay out high dividends, should remove the major overhang on the stock.

Our TP is more conservative than the consensus as we have adopted conservative valuation metrics due to the unexciting earnings outlook and potential regulatory risks, such as higher gaming tax.

Potential catalysts include higher-than-expected ticket sales due to a rebound in consumer sentiment. Intensified efforts by regulators to curb illegal number forecast operators’ (NFOs) activities could also boost Magnum’s ticket sales.

We have upgraded our recommendation call on Magnum to “buy” on a discount dividend model-based TP of RM2.05. With a major downside risk being removed with the tax settlements, we do see value emerging for the stock in view of its recent price weakness.

Key risks include lower-than-expected ticket sales due to intensified competition from illegal NFOs and an increase in gaming tax. — AllianceDBS Research, Sept 21