Magnum: Earnings Plunged due to High Prize Payout

Background

Magnum Bhd ('Magnum') is involved in the gaming or numbers forecasting lottery business. I have recently mentioned that this stock is a good income stock as it pays a decent dividend with yield about 6% previously. Today I like to post a quick take on it in view of its 'bad' result for the latest quarter.

Results Update

In QE30/6/2016, Magnum's net profit dropped 62% q-o-q or 64% y-o-y to RM21.8 million while revenue dropped 17% q-o-q or 5% y-o-y to RM626 million. The drop in profits was due to an exceptional higher prizes payout, coupled with lower revenue (due to three less draws). In addition, the PBT in the preceding quarter was boosted by favorable movement of fair value gain on quoted investment (of RM5.5 million) & lower operating expenses.


Table: Magnum's last 13 quarters' P&L


Chart 1: Magnum's last 13 quarters' P&L

Valuation

Magnum (closed at RM2.47 yesterday) is now trading at a trailing PER of  21x (based on last 4 quarters' EPS of 11.73 sen). Its dividend yield has dropped to 5.3% from 8.1% previously as its dividend for the past 4 quarters has declined to 13 sen as compared to 20 sen in the preceding 4 quarters.

On the other hand, BJToto (closed at RM3.29 yesterday) is now trading at a trailing PER of 14.5x (based on last 4 quarters' EPS of 22.76 sen). Its dividend yield is at 5.8% (based on last 4 quarters' DPS totaling 19 sen). As such, BJToto is preferred to Magnum.

Technical Outlook

Magnum's share price is declining along a downtrend line, RR with resistance at RM2.50.


Chart 2: Magnum's monthly cjart as at Aug 18, 2016 (Source: Shareinvestors)

Conclusion

Based on poor financial performance and negative technical outlook, Magnum is a stock to be avoided at this moment. If you are looking for income stock, BJToto is preferable due to slightly more attractive valuation and slightly better technical outlook (with sign of bottom formed for BJToto).

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.