• The Star reported that the government plans to reduce the number of special draws for all number forecasting operators (NFOs) in year 2019F. The announcement of this new policy will be made during Budget 2019, scheduled to be tabled on 2 November 2018.

• The government is reducing the number of special draws for the NFOs to cut down on the number of gambling days so that there will not be social ills such as gambling addiction.

• We do not know whether the government is reducing the number of special draws to zero or just cutting down the number of special draws.

• This development is negative for Magnum. In addition to the 22 special draws, we believe that Magnum had four exclusive draws in FY17, which the other lottery operators did not receive. Hence, the 26 additional draws were 14% of total number of draws of 183 in FY17.

• We estimate that Magnum’s FY19F net profit would fall by 16.4% if the number of draws fall by 26 from 183 to 157.

• In line with the lower net profit, we may have to reduce our forecast for Magnum’s dividend payout. Currently, we are forecasting a gross DPS of 16 sen for FY19F, which is the same as FY18E.

• Reducing the number of special draws for the NFOs would result in lower tax revenue for the government. According to the report, Finance Minister Lim Guan Eng said that revenue collected from the special draws amounted to RM238mil in year 2017.

• Currently, the gaming tax is 8% on gross ticket sales while the pool betting duty is 8% of net ticket sales. The government will also collect a sales and service tax of 6% from 1 September 2018 onwards.

• Maintain SELL on Magnum with a fair value of RM2.12/share.

Source: AmInvest Research - 8 Aug 2018