MAGNUM BHD

Target price: RM2.25

MAYBANK IB Research reiterated that Magnum Bhd’s operating environment is recovering. It pointed out that Magnum will also revert to its more than 80% core dividend payout ratio policy going forward, despite the tax penalty overhang.

As such, Maybank IB has tweaked its earnings per share estimates on Magnum by 2%-3% higher, which would lift its dividend per share estimates by 8% and lift its endFY18 discounted cash flow-based target price by 7% to RM2.25 per Magnum share.

The research house gave a “buy” call on Magnum shares with catalysts including a sharp reduction in tax penalty of RM476.5mil or 33 sen per share and spinning off its U-Mobile business.

Revenue from numbers forecast operator grew 5% year-on-year (FY17: -1% y-o-y) which is a major positive reversal after years of decline.

Magnum said the recovery started in the second quarter of 2017 following the nationwide crackdown on illegal gambling.

Maybank IB said Magnum’s FY18 is off to a good start thanks to jackpot games (18% of FY17 revenue), which saw 1Q18 to date revenue surged 33% y-o-y

Maybank IB said Magnum had secured enough financing to pay the tax penalty without jeopardising its dividends. This reassures that Magnum’s dividend yields will stay above 6% per annum going forward.