AllianceDBS remains cautious on Magnum on sluggish earnings outlook

PETALING JAYA: AllianceDBS Research is maintaining its cautious stance on Magnum Bhd, citing a sluggish earnings outlook and downside risks to dividend forecasts due to potential tax liabilities.

The research house expects the number forecast operator’s gaming revenue for the second quarter (Q2FY18) to be flat or decline year-on-year, dragged down by the FIFA World Cup tournament, which caused some punters to shift their funds to sports betting.

Another factor expected to impact the group’s performance is its jackpot prizes during the period, which did not snowball to an attractive level of above RM20mil to attract more participation.

The group is set to release its Q2 results next week.

On the group’s tax liabilities, the research house said the downside risk to its dividend forecasts could derail Magnum’s attractiveness as a high dividend-yielding stock.

In May last year, Magnum announced that it had been slapped with notices of additional assessment amounting to RM477mil by the IRB, including penalties.

The research house noted that the management, during a recent meeting with the research house, did not provide much updates on the ongoing legal dispute with the Inland Revenue Board (IRB).

“Although the management highlighted that there are reasonable grounds to challenge the validity of the notices of additional assessment and the group is able to obtain financing to meet the tax liabilities should the court decision turn unfavourably against them, we remain concerned that the group may need to conserve cash if the court judgment is unfavourable and the tax liabilities are not reduced significantly,” it said in a report.

Even if the tax liabilities were to be reduced by 50%, it said, the amount remained sizeable at RM239mil, which is more than Magnum’s annual core earnings over the past few years.

On the group’s new game variant, ‘Magnum Life’ which replaced its unpopular ‘ 4D Powerball’ game, the research house does not expect it to Magnum’s bottomline.

“Although we understand that the response so far has been encouraging, we believe that the new game variant will not be a game changer,” it said.

AllianceDBS Research noted that its stance on Magnum was more conservative than consensus, and maintained its “hold” recommendation with a lower target price of RM2.05.

It also trimmed its FY18-FY20 earnings estimates by 3% mainly to account for lowering its FY18 gaming revenue growth to minus 1% from a flattish revenue growth previously, and for bookkeeping purposes.

“We do not foresee any re-rating catalyst for the stock at this juncture,” it added. significantly boost