(Sept 12, RM2.84)
Maintain buy with a higher target price (TP) of RM3.35 from RM3.15 previously: We maintain our “buy” recommendation on Magnum Bhd (Magnum) with a higher dividend discount model-based TP of RM3.35. We remain positive that: i) the group will continue to benefit from the clampdown on illegal number forecast operators (NFOs); and ii) the company’s dividend payout is expected to trend upward with the full settlement of its tax liabilities by June 2019. Besides that, the potential monetisation of its 6% stake in U Mobile in the near future could pose upside potential to its dividend payout.
Our TP is higher than the consensus as we have higher earnings estimates and dividend payout assumptions for financial year 2019 (FY19) to FY21. We expect Magnum’s sustained attractive dividend yield of 6% or more to be supportive of its share price. Potential/ongoing monetary easing policies by major global central banks and Bank Negara Malaysia could also promote a yield-seeking investing strategy, which favours companies like Magnum.
Higher-than-expected ticket sales due to a rebound in consumer sentiment would be a positive for the company. Intensified efforts by regulators to curb illegal NFO activities could also boost Magnum’s ticket sales.
With improved prospects, a sustained dividend yield of approximately 6% and the issue of the company’s tax liability overhang addressed, we continue to see value in the stock.
Key risks include lower-than-expected ticket sales due to intensified competition from illegal NFOs and an increase in gaming tax. — AllianceDBS Research, Sept 12