Multi-Purpose Holdings Bhd (Nov 30, RM2.59)
New coverage, outperform with fair value of RM3.10: With 100%-ownership in Magnum since June, gaming is now MPHB’s main core business. We estimate that in FY12, gaming will contribute about 80% to 85% of net profit, up from about 60% in FY10.
As for its other businesses — financial services, stockbroking and property investment and hotels — MPHB is in the process of selling these off, first to pare down debt, and secondly to concentrate its attention on gaming.
The response to Magnum’s 4D jackpot game has been phenomenal, with average sales/draw spiking to as high as RM4 million to RM5 million during periods when the jackpot figure has accumulated to a large amount.
Even after the launch of Berjaya Sports Toto’s competing 4D jackpot game in June, Magnum has not seen any significant downturn in its lotto sales, which indicates that the market has actually expanded.
In FY11, Magnum’s 4D jackpot game was averaging about RM2.5 million to RM3 million per draw in gross revenue, compared with BToto’s RM1.5 million to RM2 million.
Although there are new punters who have started buying lotto as a result of this new game, management believes that a significant amount of the market expansion came from the illegal market, as it is unable to match this kind of payout scale.
We project Magnum’s 4D jackpot game to contribute close to 20% of gross revenue by FY13 (from 16% in 1HFY11).
The risks include: (i) poor luck factor; (ii) regulatory changes for the numbers forecast operators (NFO) industry to discourage gambling or to allow competitors more outlets and more game variations; and (iii) a hike in gaming taxes.
We project MPHB will deliver a three-year earnings compound annual growth rate of 10.8%, with earnings driven by the gaming division, as well as lower interest expense after the partial repayment of its outstanding debt from the RM375 million proceeds of the sale of Menara Multi-Purpose.
We value MPHB at RM3.10 per share, based on sum-of-parts valuation. Our fair value indicates an upside potential of 20.7% from the current price.
We believe MPHB is a deep value stock at current prices. We highlight that even at our fair value of RM3.10, this implies a price-earnings ratio of only 12.3 times CY12, which is still at a discount to BToto.
At the current market price, after deducting our estimated value of all of MPHB’s other assets, we estimate that the market is pricing the gaming business at only seven times CY12.
We believe one of the main re-rating catalysts for the stock would be the disposal of more of its non-core assets, which will put MPHB on a more even footing with BToto. — RHB Research, Nov 30
This article appeared in The Edge Financial Daily, December 1, 2011.
New coverage, outperform with fair value of RM3.10: With 100%-ownership in Magnum since June, gaming is now MPHB’s main core business. We estimate that in FY12, gaming will contribute about 80% to 85% of net profit, up from about 60% in FY10.
As for its other businesses — financial services, stockbroking and property investment and hotels — MPHB is in the process of selling these off, first to pare down debt, and secondly to concentrate its attention on gaming.
The response to Magnum’s 4D jackpot game has been phenomenal, with average sales/draw spiking to as high as RM4 million to RM5 million during periods when the jackpot figure has accumulated to a large amount.
Even after the launch of Berjaya Sports Toto’s competing 4D jackpot game in June, Magnum has not seen any significant downturn in its lotto sales, which indicates that the market has actually expanded.
In FY11, Magnum’s 4D jackpot game was averaging about RM2.5 million to RM3 million per draw in gross revenue, compared with BToto’s RM1.5 million to RM2 million.
Although there are new punters who have started buying lotto as a result of this new game, management believes that a significant amount of the market expansion came from the illegal market, as it is unable to match this kind of payout scale.
We project Magnum’s 4D jackpot game to contribute close to 20% of gross revenue by FY13 (from 16% in 1HFY11).
The risks include: (i) poor luck factor; (ii) regulatory changes for the numbers forecast operators (NFO) industry to discourage gambling or to allow competitors more outlets and more game variations; and (iii) a hike in gaming taxes.
We project MPHB will deliver a three-year earnings compound annual growth rate of 10.8%, with earnings driven by the gaming division, as well as lower interest expense after the partial repayment of its outstanding debt from the RM375 million proceeds of the sale of Menara Multi-Purpose.
We value MPHB at RM3.10 per share, based on sum-of-parts valuation. Our fair value indicates an upside potential of 20.7% from the current price.
We believe MPHB is a deep value stock at current prices. We highlight that even at our fair value of RM3.10, this implies a price-earnings ratio of only 12.3 times CY12, which is still at a discount to BToto.
At the current market price, after deducting our estimated value of all of MPHB’s other assets, we estimate that the market is pricing the gaming business at only seven times CY12.
We believe one of the main re-rating catalysts for the stock would be the disposal of more of its non-core assets, which will put MPHB on a more even footing with BToto. — RHB Research, Nov 30
This article appeared in The Edge Financial Daily, December 1, 2011.
