Tax bill settlement removes major overhang on Magnum
KUALA LUMPUR: Number forecast operator (NFO) Magnum Bhd (Magnum) is set to settle its tax bill with the iNland Revenue Board (IRB), which analysts say will remove a major overhang from the group’s stock moving forward.
This was reflected in its performance on Bursa Malaysia yesterday when the shares rose 3.21 per cent or six sen higher to RM1.93 at closing. More than 1.51 million shares were traded.
Magnum announced that the group has reached an agreement with the IRB on September 20, whereby Magnum will bear additional tax liabilities of RM148.2 million to be settled via offsetting against a tax refund of RM48 million; making a full settlement of RM95 million; and RM5.2 million to be paid in installments.
To recap, Magnum announced back in May last year that it was slapped with notices of additional assessment by the IRB amounting to RM477 million, including penalties. The said notices of assessment were raised principally pursuant to the disallowance of deduction of certain interest expenses incurred for investments.
“The final tax bill of RM148.2 million, while still steep, represents only 31 per cent of the
The final tax bill of RM148.2 million, while still steep, represents only 31 per cent of the RM477 million liabilities initially claimed by the authorities. AllianceDBS Research
RM477 million liabilities initially claimed by the authorities,” said AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a note yesterday.
“Furthermore, with a tax refund of RM48 million permitted by the IRB, the group will only need to make cash payment of RM100 million, with RM5 million to be paid in installments.
“The final tax bill of RM148.2 million will result a in 10.4sen cut in earnings per share (EPS). Nonetheless, we view the additional tax liabilities to be one-off in nature and would not affect the future earnings prospect of the group.”
More importantly, AllianceDBS Research understood that the group should be able to secure a bridging loan to settle its tax payment of RM100 million. Its net gearing ratio will also stay comfortable at 0.2 times with the bridging loan.
“As such, the tax settlement should not hinder the group’s ability to continue paying out high dividends,” it affirmed.
Magnum is viewed as a dividend yield stock by the investment community. As such, AllianceDBS Research said the group’s share price performance is closely correlated with its ability to pay out high dividends.
“Therefore, we view the development positively as we believe that the tax settlement, without potential constraints to its high dividend payouts of about 85 per cent, will remove a major overhang on the stock.
“Its recent share price performance has been sluggish. The stock has dropped circa 19 per cent from its high of RM2.34 in mid-June. In view of its recent price weakness, we see that value has emerged on the stock, particularly with the key regulatory risk of the tax bill being removed.
Current share price weakness offers buying opportunity. Upgrade to BUY. We upgrade our recommendation call on Magnum to buy on a target price of RM2.05.”