Magnum: Value Appears After A Hard Knock!

On May 19, Magnum announced its result for QE31/3/2017. That announcement was overshadowed by the announcement that it was penalized by the Inland Revenue for an amount of RM476.5 million. Today, The Star newspaper tried to address the question on many investors' mind: Is it time to look at Magnum?

Result Update

For QE31/3/2017, Magnum's net profit dropped 32% q-o-q or 56% y-o-y to RM30.6 million while revenue - up 10% q-o-q but down 7% y-o-y - to RM697 million.


Table 1: Magnum's last 8 quarterly results

This bottom-line does not reflected the tax penalty which would only be taken into the book in QE30/6/2017. If this has been taken into the book for QE31/3/2017, this result would be a huge loss. See the table below. 


Table 2: Magnum's results for QE31/3/2017 (as reported & adjusted)

Over the past 3-4 years, Magnum has experienced a declining profit trend. More importantly, its revenue has also been declining slowly. This is due to competition from the illegal gaming syndicates. Despite introducing new games, Magnum has not been able to stop the slide.


Graph: Magnum's last 14 quarterly results

Valuation

Magnum (closed at RM1.71 last Friday) is now trading at a PER of 16 times (based on last 4 quarters' EPS of 10.7 sen). Magnum's Price to Book is about 1.26x (based on its adjusted NTA of RM1.35 per share as at 31/3/2017 after deducting the tax penalty from net assets). Magnum has suspended its dividend for this quarter. Prior to this, its dividend payment for the preceding 4 quarters was 13 sen. If it can continue to pay this level of dividend again, the dividend yield would be 7.6%.

Hence, Magnum has dropped to a price level that makes the stock fairly attractive.

Technical Outlook

Magnum has dropped close to its long-term uptrend line, SS. The support from that uptrend line at RM1.60 should hold up the stock.


Chart 1: Magnum's monthly chart as at Jun 9, 2017 (Source: ShareInvestor.com)

It is too early to say that Magnum has hit the bottom. However, we see that some buying support has appeared at the RM1.70 mark.


Chart 2: Magnum's daily chart as at Jun 9, 2017 (Source: ShareInvestor.com)

Conclusion

Based on its lower price, Magnum is once again trading at fairly attractive valuation. This coupled with the technical support at RM1.60 level, make Magnum worthwhile stock to consider for long-term investment.

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.