KUALA LUMPUR: Maybank Investment Bank Research sees the government’s proposal to reduce the special draws awarded to numbers forecast operators (NFOs) to have a minimal impact on Berjaya Sports Toto and Magnum.
“We estimate that every one less special draw will trim our Berjaya Sports Toto and Magnum EPS estimates by only 0.3%,” it said on Wednesday.
Maybank Research even if both companies were not awarded special draws from 2019 onwards, which it thinks is highly unlikely, it estimated that the its forecast for Berjaya Toto would be trimmed by 7% per annum and target price (TP) will be trimmed by 6% to RM2.50.
As for Magnum, its EPS estimates will be trimmed by 8% per annum and TP will be trimmed by 9% to RM2.05.
“In fact, we gather that the negative impact to Berjaya Toto and Magnum may eventually not be as pronounced as punters will likely bet more on Wednesday draws. Thus, we are not overly concerned and retain our neutral view on the NFO industry and our Hold calls on the two companies,” it said.
The research house also pointed out NFOs barely generate profits from special draws due to an additional tax.
On Tuesday, Yesterday, Finance Minister Lim Guan Eng stated in Parliament that the government plans to reduce the number of special draws awarded to NFOs from 2019. In 2018, Berjaya Toto and DaMaCai (Unlisted) were awarded 22 special draws while Magnum was awarded 26 special draws.
Lim did not state how may special draws will be awarded in 2019 but stated that an announcement will be made during the tabling of Budget 2019 on Nov 2, 2018. Special draws were introduced in 1998 to raise funds during the Nipah virus outbreak and are typically held on Tuesdays.
Special draws are held over and above the normal draws held every Sunday, Wednesday and Saturday (156-157 normal draws per annum).
Normal draws incur 8% gaming tax (GT) on sales, 8% pool betting duty (PBD) on (sales – GT), 10% royalty to the Ministry of Finance or National Sports Council on pre-tax profit and 6% Sales & Service Tax on (sales - GT - PBD - prize payout) (effective Sept 1, 2018).
“We estimate that the net profit margin on normal draws is 10%. Special draws not only incur all of the aforementioned taxes, they also incur 10% special contribution to the government on (sales – GT). Sales garnered during special draws are also typically 10%-15% less than normal draws due to their proximity to Wednesday draws.
“We estimate that the net profit margin on special draws is less than 5%. Thus, we do not expect a reduction in the number of special draws to significantly impact NFO earnings,” it said.
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