This article first appeared in The Edge Malaysia Weekly, on February 15 - 21, 2016.

Eyebrows were raised when Magnum Bhd announced the results of a draw on Feb 2. The fact that it was the only NFO to announce a draw result that Tuesday fuelled speculation that it had special permission for an extra draw.

A senior official at Magnum confirmed the extra draw but declined to elaborate further.

A gaming analyst with a local bank notes that NFOs need the government’s approval for an extra draw or a new game. “It is interesting that Magnum was the only company that announced a draw on Feb 2. Was it a one-off or will there be more to come? Extra draws mean extra revenue … On the flipside, it also means more tax expenses.”

“It is the usual practice for NFOs to announce draws on the same day. It has been the case … as far back as 2008. But Magnum’s draw on Feb 2 was an additional draw as Da Ma Cai and (Berjaya Sports) Toto did not have one,” adds the analyst, who covers the two latter NFOs.

A check on the websites and standalone shops of the three NFOs reveal that they have announced draws on the same dates in the last few months, except in early February.

Both Magnum and Berjaya Sports Toto are listed while Da Ma Chai is not. Its holding company Pan Malaysia Pools Sdn Bhd (PMP) was sold by Tan Sri Ananda Krishnan’s Tanjong Plc to a consortium of prominent tycoons for RM2.1 billion in August 2011. There was talk in the gaming industry that the tycoons planned to list the company on Bursa Malaysia but to date, that has not materialised.

Meanwhile, Magnum also introduced a new game last month, the 4D Powerball.

Although the 4D Powerball could cannibalise Magnum’s 4D Jackpot sales, UOB Kay Hian Research reckons the new game would moderately enhance Magnum’s ticket sales over time, once it has gained popularity.

The foreign research house estimates the new game generated sales of RM470,000 (or RM970 sales per outlet) in its maiden draw. “This represents a modest 2.8% of our sales estimate per draw. Note that 4D Jackpot and 4D Jackpot Gold’s estimated sales were RM2 million and RM100,000 respectively,” it notes in a Jan 26 report.

Magnum’s stock has been on a downtrend since last September, hitting a one-year low of RM2.44 on Jan 14. It started to climb at the end of January to hit RM2.52 on Feb 5 but tapered to close at RM2.49 last Thursday. It has an indicative gross yield of 7.06%.

UOB Kay Hian head of research Vincent Khoo believes Magnum’s stock has bottomed out. “It is trading at attractive yield levels again, in the 6% range. The stock has been going down partly because earnings are down too, as the business is quite dependent on consumer sentiment, which is getting weaker. This NFO business is always resilient but somehow, this time around, it is less so. Consumers seem to be switching to illegal gaming,” he says.

“Illegal gaming seems to be growing from strength to strength, based on our checks. This is driven by two reasons — one is better prize payouts, as the illegal gaming businesses do not have to pay tax. The second reason is the extension of credit to consumers. Players of illegal gaming can make bets without having to pay upfront,” he adds.

Legal gaming companies are taxed heavily; they pay gaming tax of 8% of gross gaming revenue and betting duty of 8% on net gaming revenue. This means they have to pay a total tax of 15.4% on gross gaming revenue. These taxes are on top of the corporate taxes and goods and services tax (GST) that NFOs pay.

The senior official with Magnum says illegal gaming is taking away a “fair market share” from the NFOs. “They are getting bolder and even have a structure to their system. They can even open bank accounts for players and bank in the money when they win or take out the cash when they lose,” he says.

“Some of the illegal gaming companies are gaining market share by riding on internet gaming sites,” he adds.

For the nine months ended Sept 30, 2015, Magnum registered gaming sales of RM2.098 billion, which was 2.8% lower year on year. This was mainly due to weak consumer spending.

In line with the lower sales coupled with the GST, its gaming net profit fell 3.8% in the same period to RM188.56 million.

Formerly known as Multi-Purpose Holdings Bhd, Magnum undertook a demerger exercise in 2013 to better reflect the core businesses of the two demerged entities. As a result, Magnum now holds the gaming business while MPHB Capital Bhd holds the financial services, hospitality and property investment businesses.

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