4QFY21 net profit of RM20.5m which turned around from losses in the preceding quarter is still below expectations given the slower-than-expected recovery in ticket sales. However, as the current ticket sales are nudging closer to pre-MCO 3.0 lockdown levels, we believe a full recovery to pre-COVID level is likely starting from 2HFY22. Nonetheless, we believe the price is fully reflective of its near-term positives. Thus, the stock remains MP with a slightly lower TP of RM1.95/DCF share.

4QFY21 missed forecast. 4QFY21 turned profitable with profit of RM20.5m, which brought FY22 net profit to RM0.2m that missed our FY21 profit forecast of RM18.4m and market consensus of RM31.2m. This was mainly due to weaker-than-expected ticket sales as the recovery post MCO 3.0 lockdown was slower than our estimate at 50%- 60% to pre-COVID levels initially before recovery to 70%-75% in 4QFY22 against 80%-85% prior to the lockdown. It has resumed dividend payout after dividend drought for three consecutive quarters, by declaring 1.5 sen in 4QFY21 vs. a total of 8.5 sen paid in FY20 and our FY21 forecast of 1.0 sen.

Turnaround sequentially as business resumed. 4QFY21 net profit of RM20.5m posted as opposed to net loss of RM29.9m in the preceding quarter as revenue jumped 6-fold to RM483.0m after the business resumption of outlets from 14 Sep 2021. There were 45 draws in 4QFY21 vs. 8 draws previously while average ticket sales per draw improved to RM11.7m from RM9.0m. In addition, lower prize payout also helped to push earnings higher.

But the recovery was slower than expected. YoY, 4QFY21 net profit declined 48% from RM39.8m in 4QFY20 with revenue falling 8%, due to slower-than-expected in ticket sales recovery as mentioned above. 4QFY21 average ticket sales per draw contracted 14% from RM13.6m leading to an 8% decline in total ticket sales of RM525.0m from RM573.0m although the current quarter conducted 45 draws vs. 42 draws last year. YTD, FY21 net profit of RM0.2m against RM102.0m posted in FY20 was also due to the slower-than-expected ticket sales due to several MCOs.

Nonetheless a better FY22. MAGNUM experienced the same ticket sales trend as its rival BJTOTO (OP; TP: RM2.22) in the past two years during this pandemic period. As the country will not go back to lockdown again even as COVID cases are rising, according to the government official, we believe ticket sales is unlikely to see substantial decline. As such, upcoming result will only get better. Post 4QFY21 results, we keep our FY22 forecasts unchanged while introduce new FY23 forecasts with earnings to grow at 26%.

In the price; MARKET PERFORM retained. With no more lockdown as quoted by the authority, the worst that we seen in FY21 is over and a swift recovery of ticket sales is expected in FY22 with full recovery to preCOVID levels expected in 2H 2022. Having said that, we believe upside potential is limited given near-term catalysts are already mostly priced in at the moment. Thus, MAGNUM is maintained at MARKET PERFORM with a slightly lower target price of RM1.95/DCF share from RM1.96/DCF share. Our call is still supported by a decent dividend yield of >5%for FY22. Upside risk to our recommendation is a quicker-than-expected recovery of ticket sales.

Source: Kenanga Research - 25 Feb 2022