Weak quarter expected in 2QFY20 for Magnum

Magnum Bhd (Magnum) is expected to record a weak second quarter of the financial year 2020 (2QFY20) due to the Movement Control Order (MCO).

To note, the MCO, or currently the Conditional MCO (CMCO) has been extended until June 9 and number forecast operators (NFO) are still not allowed to reopen.

The research team at Kenanga Investment Bank Bhd (Kenanga Research) said should NFO are allowed to restart after June 9, there would only be nine draws available in 2QFY20 as compared to the usual quarterly draws of 40 to 42.

“As such, the coming 2QFY20 results would be badly hit to as low as

RM6 million net profit assuming EPPR of 65 per cent and ticket sales of RM17.3 million per draw.

“With the extension of MCO to June 9, we reduced our FY20 draw assumption by another 24 draws to 130 from 154 previously,” it said.

It also noted that the extended MCO for total 12 weeks has cancelled 36 draws.

Kenanga Research also trimmed ticket sales per draw assumption to

RM17.3 million from RM18 million with unchanged EPPR of 65 per cent.

“We also reduced FY21 ticket sales per draw to RM17.9 million from RM18.3 million with unchanged EPPR of 65 per cent and 166 draws.

“With this, we cut FY20 and FY21 core net profit (CNP) estimates by 22 and one per cent with dividend cut at the same proportion based on unchanged payout of 80 per cent,” it added.

For 1QFY20, Kenanga Research noted that Magnum’s net profit dipped marginally by one per cent quarter-onquarter (q-o-q) to RM55.6 million from RM56.3 million in the preceding quarter as revenue fell three per cent over the quarter to RM609.5 million.

Total ticket sales fell three per cent to RM662.5 million as 1QFY20 played 36 draws as opposed to 42 draws conducted in 4QFY19.

“However, average ticket sales per draw for the Chinese New Year-led 1QFY20 jumped 13 per cent to RM18.4 million from RM16.3 million on seasonality,” it said.

On a yearly basis, Kenanga Research said Magnum’s 1Q net profit fell seven per cent from RM60 million as revenue contracted 19 per cent, primarily due to MCO lockdown.

It pointed out that there is a greater impact in its y-o-y earnings as opposed to q-o-q because ticket sales in 1QFY19 were stronger at RM19.6 million per draw compared with RM18.4 million this year.

All in, Kenanga Research downgraded its call on the stock to ‘underperform’.

“We expect near-term price volatility given the expected poor 2QFY20 results.

“In addition, being an unessential service provider, any delay of reopening economy from MCO will impact earnings further,” it said.