Maintain BUY call and MYR2.43 DCF-based TP
Omicron, competition and high prize payout ratio dented 1Q22 results.
Yet, we note that most of the aforesaid have passed. Thus, future
earnings and dividends ought to be better. On that note, we maintain our
earnings estimates, dividends estimates and MYR2.43 DCF-based TP. Our
estimates assume that gross NFO sales/draw will only recover to c.90% of
pre-COVID-19 levels. Thus, there could be upside potential should gross
NFO sales/draw recover to 100% of pre-COVID-19 levels. Maintain BUY.
Earnings and dividends below our expectations…
1Q22 core net profit of MYR16.6m (+122% YoY, -19% QoQ) and first
interim DPS of 1sen (1Q21: nil, 4Q21: 1.5sen) accounted for only 9%/8%
of our FY estimate. We gather that the shortfall was due to:- (i) lowerthan-expected sales due to the Omicron wave that began in Jan 2022;
(ii) punters migrating to Sports Toto Malaysia due to the lure of its
Supreme Toto 6/58 jackpot which peaked at MYR97.8m; and (ii) higherthan-expected 1Q22 prize payout ratio of 66% (MIBG forecast: 62%).
… but worst likely over, in our view
Notwithstanding the above, we note that:- (i) the Omicron wave has
subsided, this ought to embolden punters to bet again; (ii) the huge
Supreme Toto 6/58 jackpot was struck on 30 Mar 2022, causing some
punters to migrate back to Magnum; and (iii) prize payout ratio ought to
normalise at the theoretical average of 62% in the long run. Thus, we
believe that future quarterly earnings and dividends ought to be a lot
better than that of 1Q22.
Maintaining earnings and dividends estimates
In our view, our earnings and dividend estimates are sufficiently
conservative in that they imply that MAG’s gross NFO sales/draw will
recover to only c.90% of pre-COVID-19 levels in the long term. Thus,
there could be further upside potential to earnings, dividends and TP
should the COVID-19 pandemic truly be brought under control and a
global recession is avoided.