Mixed calls on Magnum despite 2QFY17 within expectations
KUALA LUMPUR: Magnum Bhd (Magnum) is receiving mixed calls from analysts as the group posted second quarter of financial year 2017 (2QFY17) results that were largely in line with analysts and consensus expectations.
In a results note, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) reported that the group has posted a first half of 2017 (1H17) net profit of RM90.6 million – meeting 45 and 49 per cent of theirs and consensus full year FY17 earnings estimates.
Quarter-over-quarter (q-o-q), this was a huge 96 per cent boost in net profit as it jumped to RM60.0 million from RM30.6 million in the previous quarter, the root cause of this being due to an extremely poor luck factor in 1QFY17 which improved in 2QFY17.
Against the theoretical pay-out ratio of 66 per cent, Magnum’s 1QFY17 experienced a 71.5 per cent while its 2QFY17 experienced a 63 per cent.
Besides that, 2Q17 net profit had also jumped by 175 per cent y-o-y as the group experienced its best non-Chinese New Year quarter in a year with average ticket sales of RM15.7 million.
While the luck factor remains the main deciding factor for the lottery operator’s outlook, Kenanga Research is expecting 2H17 is be stronger than 1H17 as they expect estimated prize pay-out ratio to normalise after 1Q17 was hit by the extreme poor luck factor.
On the other hand, research house Alliance DBS Research Sdn Bhd (AllianceDBS) reckons that it is far too early to place bets on Magnum given their still unfavourable odds.
“Other than cloudy earnings outlook, we are concerned that the group may need to conserve cash in the near term until the dispute over the potential tax liabilities is resolved. This would restrict its ability to dish out hefty dividends going forward,” said the research house in justification of their bearish stance.
The tax liabilities that AllianceDBS is referring to are the previous orders by the Director General of Inland Revenue (DGIR) for Magnum and its subsidiary Magnum Holdings Sdn Bhd to pay a total of RM477 million in tax liabilities for the years of assessment of 2008 and 2011 to 2015.