While lower special draws and the closure of outlets in Kedah are negative developments for Sports Toto, the net impact on the numbers forecast operator will likely be insignificant, says Kenanga Research.
PETALING JAYA: The expected earnings recovery for Sports Toto Bhd
remains intact despite the change in rulings leading to reduced special draws from 2023 and the mandated closure of outlets in Kedah.
While lower special draws and the closure of outlets in Kedah are negative developments for Sports Toto, the net impact on the numbers forecast operator (NFO) will likely be insignificant.
This is because profits from special draws are inherently low due to an extra 10% tax charged for these games, while ticket sales in Kedah historically had always been below the group’s average given the low non-Muslim population in the state.
According to Kenanga Research, the additional 10% tax on special draws tend to reduce NFOs’ profitability significantly as opposed to the usual regular draws. As for the impact from outlet closure in Kedah, the brokerage noted Sports Toto has only 19 outlets in the state, which made up less than 3% of its 680 outlets nationwide.
Conversely, Kenanga Research said there was some optimism that Sports Toto could see ticket sales recovering to 80%-85% of pre-pandemic levels at 87% and 92% in the financial year ending June 30, 2023 (FY23) and FY24.
This optimism was premised on the recovery of the country’s economy, which should boost consumers’ spending power, and enforcement crackdown on illegal operators, which should hasten recovery of NFOs.
The brokerage maintained its “overweight” call on Sports Toto, citing earnings recovery. However, it lowered its target price for the counter to RM1.93 from RM1.95.
“We continue to like this high-dividend yielding stock which is supported by the recovery of ticket sales, making it as good avenue for income seekers for its attractive dividend yield of more than 9%,” it said.
