PETALING JAYA: Multi-Purpose Holdings Bhd (MPHB) is raising its stakes in the numbers game, and that could enhance its appeal to investors.

With plans to gain full control of its gaming arm Magnum Holdings Sdn Bhd and dispose of its non-core assets, the company has embarked on a transformation path to become a pure number forecast operator (NFO) player in Malaysia.

Incorporated in 1975, MPHB is an investment holding company, whose business interests, besides gaming, also include financial services, stockbroking, hospitality and property development.

The company last week announced that it planned to rationalise its non-core assets through a divestment programme that could potentially raise RM1bil and focus on gaming. MPHB believed a better clarity of its core business would widen its appeal, particularly among institutional investors.

Market analysts concede that the move is a favourable development for the company, whose revenue and earnings are mainly generated from the gaming machinery.

A Magnum 4D outlet.

An analyst says MPHB could look even more attractive now, as gaining full control of Magnum means increased contribution from the cash cow.

Magnum is one of the major NFO players in the country. It constantly challenges the market leadership of Berjaya Sports Toto Bhd (BToto), thanks to its popular 4D Jackpot game. Magnum currently commands 36% share in the local NFO market, compared with BToto's 40% share.

Hwang-DBS Research said in a report that MPHB could look even more attractive now, as gaining full control of Magnum mean increased contribution from the cash cow, while potential divestment of its non-core assets would strengthen its balance sheet.

MPHB had last Wednesday signed a RM1.64bil deal to acquire the remaining 49% stake it did not already own in Magnum from several vendors. They included Asia 4D Holdings Ltd and Asia 4D Company Ltd, the wholly-owned units of CVC Capital Partner, which collectively own a 47% stake in Magnum, and certain members of the management of Magnum who collectively own the balance of 2%. The total purchase consideration would be satisfied with an issuance of 360.5 million new MPHB shares valued at RM2.30 each and RM809.2mil cash.

“The proposed acquisition will immediately be earnings accretive to the existing shareholders of MPHB even after taking into account the additional new MPHB shares to be issued as part consideration for the acquisition,” ECM Libra said in a report.

Based on the annualised numbers for the first nine months of 2010, ECM Libra expected MPHB's net profit to increase by 53%, while earnings per share would grow by 33%.

MPHB's results for the third quarter ended Sept 30, 2010, showed that gaming contributed 91% to total revenue and 65% to pre-tax profit. The company's total revenue for that period was RM850.7mil, while earnings were RM126.5mil. These were a major improvement compared with revenue of RM813.2mil and earnings of RM51.6mil in the previous corresponding period.

While analysts believed that the delay in the widely anticipated relisting of Magnum has somewhat disappointed investors, they argued that MPHB remained a deeply attractive and undervalued stock.

“MPHB is trading at a massive 42% discount to sum-of-parts (SOP) valuation of RM4.61. With Magnum valued at RM3.08 per share, investors are practically buying Magnum at a discount and getting all other assets for free,” said ECM Libra.

“While some may argue that the conglomerate should trade at discount to its SOP value, we believe the non-core assets divestment programme and landbank development will narrow this valuation gap,” it added.

MPHB entered a deal with Bandar Raya Developments Bhd last year to conduct a feasibility study and participate in the joint development of several parcels of land in Penang, Rawang and Gombak. The feasibility study period is due for expiry in the middle of next month.