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Wednesday, August 16, 2006

Magnum vs BJTOTO

After my recent purchase of Magnum base on speculation, I did a simple research looking at some of the fundamentals of Magnum compare to BJTOTO. Here I am to share:

a) Price Earning ratio (PER)
Earning per share for Magnum and BJTOTO is estimated at 14.2 sen and 32.8 sen respectively for Y2006. Base on Magnum price of RM2.07, this equals to PER of 14.6. For BJTOTO, with current price of RM4.42, its PER is 13.5. Obviously, Magnum doesn't look attractive, especially with the fact that most analysts will put a discount on fair PER for Magnum because of its non-market leader position in gaming sector.

b) Nett Cash
Magnum has piled up RM683.8 million of cash as reported in 1Q2006 while BJTOTO has -RM82.3 million in debt reported in 4Q2006. However, after settlement of inter-company loan, BJTOTO is expected to have RM450-500 million. For Magnum, after preceeding of Sepang land sale, it will has additional RM210 million. Considering a nett cash position of RM700-900 million, Magnum is capable to return back shareholder RM0.85-1.15 per share. While for BJTOTO, Macquarie anticiapted it will be able to distribute 35-39 sen of special dividen. However, one must take note that the cash pile of Magnum has been built up in years and Magnum had not been generous in dividen payout in the past.

c) Dividen Yield
From past history, Magnum will typically give out 10.0 sen per share dividen compare to 40.0 sen of BJTOTO. This translates to dividen yield of about 5.0% and 9.0% respectively. Again, for long term investment, BJTOTO is much more attractive than Magnum.

d) Potential Earning Growth
Magnum has been volatile and high on the prize payout ratio compare to BJTOTO. Moving forward, analysts are expecting Magnum to improve its payout ratio from 70-75% to below 70%, in line with industry benchmark. This will able to improve EPS of Magnum. For BJTOTO, analysts are confident that it will continue to expand further in market share, despite its current leading position.

So, after this simply study, I have to admit that my latest purchase of Magnum at RM2.07 appears to be quite expensive. AmResearch rate HOLD on Magnum recently at RM2.00. If we apply fair PER of 13 to Magnum, its fair price will be about RM1.85. However, I doubt that with its current price trend, Magnum price will drop back to that level.

Related articles:
1) Brokers' Digest
2) Corporate: End to BToto's intercompany loan woes soon

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Blogger Investssmart said...

with MAGNUM, if the management returns just 50c to shareholders, the valuation will change. Dividend yield will be much higher and PER will be lower. MAGNUM has about 80c in net cash and that is about 40% of its share price whereas BJTOTO has 35c which is less than 10% of its share price. It all depends on whether MAGNUM's management will distribute the wealth. I doubt it will happen soon since they are still buying back shares. we shall see in time

8:16 AM  
Anonymous waiter said...

I agree with you that the cash pile of Magnum has been built up in years and Magnum had not been generous in dividen payout in the past. So, one can wait and wait..... like the case with MTD

10:08 AM  
Blogger velo said...

Also, take note that Magnum will possible to privatize Magnum 4D and that exercise will cause ~RM100 million. Otherwise, Magnum will have to place out some Magnum 4D shares, which in return will make the cash piling higher. I really hope that whatever Magnum does with Magnum 4D, after that settled, Magnum should return at least 50% of the cash pile to its shareholder. What's the use to hold so much cash that doesn't generate reasonable ROI for investors? Someone must ask this to Magnum during the AGM.

9:02 PM  
Anonymous starter said...

Bjtoto cash pile will increase to about 468M after the inter company loan settlement.However I don't think they can afford another capital repayment after 2 capital repayment because its par value is now RM0.10.Moreover they have to settle the 200M bridging loan taken to finance the second capital repayment.

11:47 AM  
Blogger velo said...

hi..starter, that is good point! You are right, they still have some loans to settle that makes them will hold back from issuing special dividen (not necessary capital repayment though).

1:06 PM  

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