WHy now??? Cos going to come out quarterly results this few days.
Should be a good one. Willllllllllll you buy?????
Saturday December 19, 2009
MPHB has a money-spinner
By B.K. SIDHU
THE new Magnum 4D Jackpot game by Magnum Corp Bhd has created five millionaires since its launch nearly three months ago.
Magnum Corp is Multi-Purpose Holdings Bhd’s (MPHB) 51%-owned subsidiary.
There are several draws each week and the initial seed capital forked out by Magnum is RM2mil. The prize money accumulates and rolls over if there is no winner. Last week, a businessman from Sarawak netted a cool RM4.2mil. The biggest payout thus far to a single party was RM9.7mil.
For four decades, Magnum has been offering the Classic 4D game but the outlook is more promising with the new game.
Lawrence Lim ... ‘We have seen a 10% growth in sales.’
Analysts are concerned over cannibalisation of the games but MPHB managing director Datuk Surin Upatkoon does not think that is happening.
“We are bringing in the percentages from the illegal gaming companies (and there is no cannibalisation),’’ says Surin in an interview. He is also known as Datuk Lau Kin Khoon.
Magnum chief executive officer Lawrence Lim adds that the new game “has shown positive results. It may still be early days yet but we have seen a 10% growth in sales.’’
In a bid to stem illicit gambling, the Government awarded in the middle of this year an additional 10 special draws to the players. Apart from MPHB, the other two listed number forecast operators are Berjaya Sports Toto and Tanjung plc. The gaming market, both legal and illegal, is said to be worth over RM9bil a year.
Magnum, according to Lim, has a 38% market share of the 4D market and is leader in the segment.
“We are synonymous with the 4D game and we hope the 4D Jackpot will reaffirm our leadership position and will generate further growth,’’ Lim says.
But there are challenges. Magnum is not in Sabah but it hopes to expand its reach over there. The more outlets it has, the wider the reach and in that way it hopes to help the Government curb illegal gambling. But it not clear if the Government is willing to allow gaming companies to have more outlets. Lim believes that gaming should be seen as a fun thing and not gambling.
With so much excitement over the new 4D Jackpot game at Magnum, a relisting of Magnum is therefore being seriously considered. A group of investment bankers are evaluating the possibilities.
“We are looking at that option. We are looking to re-list Magnum on Bursa Malaysia at the end of next year or 2011. It is an option that will give investors a chance to invest in a pure gaming company,’’ Surin says.
Magnum was taken private in 2007. It had too much baggage and was in a lot of non-gaming related businesses. A restructuring resulted in its non-gaming assets being sold off and MPHB cherry-picking what it needed.
Magnum remains a jewel in MPHB’s crown while the other businesses do not contribute as much.
MPHB is also into property ownership and development, stockbroking, insurance. This year, it announced plans to enter the telecoms sector after buying a small stake and taking a put option for shares in smallish U Mobile Sdn Bhd.
“It is the management’s intention to have an attractive dividend policy for MPHB even if Magnum was listed. We also believe Magnum’s listing will be well received as it is value enhancing,’’ Surin says.
Lim puts a market capitalisation of about RM6bil for Magnum upon relisting. As for the debts of RM2bil on Magnum’s books, Surin says it is at “a very comfortable level’’.
Contrary to Surin and Lim’s optimism, analysts feel that it will be a mistake to relist Magnum if it remains the biggest contributor to MPHB’s net profit.
“Not many will buy MPHB if Magnum is listed, unless the former can get 50% net profit from its other businesses. If you take the jewel out and relist it, the parent is no longer attractive. The attraction in MPHB now is really Magnum,’’ says an analyst who requested anonymity.
Another analyst shares the same sentiment, saying a “relisting does not make sense unless MPHB’s other operations were bigger than gaming.’’
As it is, there is little coverage of the stock by analysts. Given its chequered past, investors are still wary of the stock.
Magnum believes that gaming should be seen as a fun thing and not gambling.
Chequered past
MPHB was over a decade ago in the centre of bruising battles and hostile takeovers. In its heydays it had a finger in every pie, with eight listed companies besides numerous unlisted entities and its share price recorded meteoric rises. MPHB, according to a market observer, still suffers from a perception issue given its chequered past. Nevertheless, a lot has changed since.
Surin has cleaned up the balance sheet and streamlined operations since coming on board a decade ago. Although it took him several years to sort things out, the MPHB group, he says, is on a much firmer footing now.
“MPHB, after the streamlining is a much more focused group with operational and investment objectives. It also has cash reserves,’’ Surin says.
MPHB’s cash reserves are expected to rise once it receives the RM127.2mil from the disposal of 48 million shares in Sarawak Electricity Board. As at end-June this year, MPHB had borrowings and cash of RM2bil and RM138mil respectively, of which the RM2bil debts where at its gaming unit Magnum.
For the nine months ended Sept 30, MPHB recorded a net profit of RM223mil on the back of RM2.45bil in turnover.
Surin said contribution from other operations will increase every year. By next year, Magnum’s contribution will make up 60% of MPHB’s net profit, and the rest from the other businesses.
To an analyst, MPHB is very much a dividend play. There was no dividend payout for more than a decade until 2007 and Surin assures that the dividend policy will remain intact going forward even if Magnum were to be listed. MPHB shares inched up one sen to close at RM1.86 on Thursday.
U Mobile venture
MPHB’s proposed foray into the mobile sector via U Mobile caused quite a stir three months ago. Analysts were against the deal as they felt that Magnum’s steady cashflow will be affected by the exposure to a capital-intensive mobile operation.
They also view U Mobile as a struggling cellular company which will impact MAHB’s ability to pay dividends.
“A RM1bil investment is nothing in the telecoms sector. Why should MPHB be taking so much risk?’’ asks an analyst.
In September, MPHB announced the purchase of a 3.9% stake in U-Mobile and a put option for an additional 41.63% for RM280mil with AmBank. It was then said that Surin was helping out long-time friend Tan Sri Vincent Tan, which Surin denied. Tan controls U Mobile.
MPHB is actually a conduit for a RM280mil loan collateralised by U Mobile shares. If there is a default on the loan repayment, MPHB will have to take over the collateralised block of shares by exercising the put option.
Surin is not unduly worried about the put option because he believes Tan will repay the loan.
“Even if he (Tan) does not, we can sell the shares. We know the telecoms business is a good investment but to run it you need deep pockets and expertise. We would be happy with about 10% stake and the rest can be sold to a strategic investor,’’ Surin says.
U Mobile is in dire need of a strategic investor after the South Korean and Japanese investors left. Talks are ongoing with several parties and a deal could be in the offing in the coming weeks.
Financial services/property
On the insurance side, MPHB prides itself to be being among the top 15 in Malaysia. Surin’s focus has been to look for business outside instead of relying on group business.That has paid off handsomely with premiums standing at RM400mil now.
“Our organic growth has reached a comfortable level and the insurance arm has achieved market recognition that allows us to look at alliances. We are, therefore, looking at strategic alliances in the region. Our issue now is how to invest the money we have,’’ says Surin.
The insurance business would rake in about RM20mil in net profit in the current financial year and the stockbroking business between RM20mil and RM30mil.
Unlike the insurance business, stockbroking is a little more challenging given the highly competitive landscape where the Internet has become a major option to trade versus the remisier-base system.
“We have our fair share of the market and the only way to grow is to look at strategic partnerships with local and foreign players,’’ he says.
It is very much retail-driven and alliances with global investment bankers to facilitate cross-border transactions is the way to go. Certainly, it will not buy over any stockbroking house.
When Magnum was restructured in 2007, MPHB had a chance to cherry pick the properties that it wanted to take over. It now has with several plots in Rawang, Kuala Lumpur, Penang, Johor and other areas.
Developing the parcels is its way of shifting over dependence of its earnings on the gaming sector.
“We are actively looking to be investors rather than developers and form joint ventures with renowed property developers to develop certain plots of land. We are in some projects and working on more. We believe our income from our property sector would be larger by next year. We also own two hotels (Flamingo Hotel) in Penang and Kuala Lumpur and a third is being developed at another site in KL,’’ he says.
He reckons the revenue contribution by the property segment this year will be RM20mil and may reach RM40mil next year.
MPHB may have its own challenges but it has to be mindful of the effects of a Magnum relisting and its venture into the mobile sector. Analysts are still concerned as they fear history repeating itself.
This is something Surin knows too well. Those who know him say that “Surin finds an opportunity even in a crisis’’ and for now they say the “dividends are going to flow through.’’