Stock Highlights

Steady as it goes. Number forecast operators (NFOs) like Magnum have been on a steady recovery since the full lifting of COVID-19 restrictions in FY22, showcasing the resilience of NFOs business and inelastic demand from punters. We believe there is still potential for Magnum’s revenue to return to its pre-pandemic level, which reached a high of RM2.7bn back in 2019. Additionally, a favourable High Court ruling in July overturning Kedah’s ban on NFO outlets offers much-needed clarity and assurance about their operation, especially in opposition-controlled states. The absence of any gaming tax or SST rate hikes in the recent Budget 2025 is also another positive relief for NFO players.

6.3%-owned U Mobile selected to implement 2nd 5G network. Last Friday, Malaysia’s telecom regulator, MCMC, has selected U Mobile to lead the implementation of the nation’s second 5G network, with the flexibility to collaborate with other network operators. In our view, this win has significantly boosted the appeal of U Mobile’s upcoming IPO, which aims to raise new capital for its network rollout. Notably, Magnum currently holds a 6.3% stake in U Mobile, positioning it to benefit from this development.

Monetisation of U Mobile stake a key catalyst. Based on consensus forecast, Magnum currently trades at an undemanding valuation of 10.7x FY24 PE and offers 5.5% net dividend yield. U Mobile’s 5G win will likely add credibility to news report suggesting a target IPO valuation of RM9bn-10bn, therefore valuing Magnum’s 6.3%-stake at approximately RM567m-630m (about 1/3 of Magnum’s market cap).

Breakout from falling wedge pattern. Since early 2024, the stock has stayed above an uptrend line and recently formed a falling wedge pattern. Just last week, it broke out of this pattern, followed by two healthy pullbacks. An ideal entry point lies between RM1.16 and RM1.18, with RM1.20 as a key resistance level. If it successfully breaks above RM1.20, the stock could test RM1.26, potentially setting up for further upward movement and challenging its 52-week high. On the downside, a break below RM1.15 may trigger to a correction toward RM1.11, a consolidation zone where strong buying interest has historically supported the stock

Source: Mercury Research - 4 Nov 2024