KUALA LUMPUR: Hong Leong Investment Bank Research (HLIB) opined that the number forecast operator (NFO) market will remain challenging with saturated market and intense competitions among operators as well as illegal operators.
Additionally, HLIB said the ongoing disputes on the interpretation of GST and non-deductible expenses for taxable income were also among the negative uncertainties.
Magnum has launched another game variant on Magnum 4D Jackpot Gold called mGold on May 17. The game is designed as a more affordable option for players to win a smaller amount of money (RM200,000 for 1st prize) with a minimum bet of RM2.
Despite mGold being linked and marketed as a 4D variant game, it is essentially a 6D game with jackpot element in it.
“Introduction of another new game essentially brings the number of jackpot games to 11 (excluding 4D, 5D and 6D) in a saturated market with declining revenue for NFOs.
“However, we do not see a direct impact of this new game hurting the existing 4D Jackpot sales as they are not available in illegal market,” HLIB said.
The research house says the mGold was a direct competition to existing Berjaya Toto's (BToto) 5D and 6D games due to their similarity.
HLIB said although the combined average sales of Magnum's 4D Jackpot Gold and 4D Powerball of circa RM200,000 per draw was relatively small compared to BToto’s RM20mil per draw, cannibalisation effect was observed on its 4D, 5D and 6D sales from jackpot games.
The research house noted that NFO players have been hit by the difference in interpretation on GST and increase in tax liability due to non-deductible expenses.
“We understand that operators have asked for reviews on both disputes. However, should both the decisions by Royal Malaysia Customs and Inland Revenue Board stay; we can expect more downside risk in earnings,” it said.
“We believe the government will eventually allow online/mobile betting for other NFO players such as Damacai's mobile app in dmcGo (approval for telephone betting under the provision of the Racing Act, 1961) has been gaining popularity since end of last year.
“We understand that both BToto and Magnum are seeking MoF’s approval on this new channel to maintain a level playing field,” HLIB said.
It said the top line for NFO had been on a declining trend hampered by weak consumer sentiment and cannibalisation from illegal operator.
“Moving forward, going online is the possible growth strategy for NFO to tap into underserved areas as the number of physical outlets is fixed,” it added.
HLIB has maintained “hold” on BToto with unchanged target price of RM2.87 (based on DCF) given the weak gaming operations, intense competition and shrinking dividend. Besides, the ongoing disputes in taxes may further affect their profitability.
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