KUALA LUMPUR: Maybank Investment Bank Research does not discount the possibility that numbers forecast operators (NFO) gaming tax rates may be hiked in the Budget 2020 proposals to be announced on Oct 11.
“We estimate that every 1ppt hike in NFO gaming tax rates will cut our Magnum and Berjaya Sports Toto (BToto) EPS estimates and TPs by 7% each.
“NFOs may moderate the impact by cutting prizes but this risks long term sales growth. We estimate that every 1ppt reduction in our long-term growth rate will cut our Magnum and BToto TPs by 11% each, ” it said in its report issued on Wednesday.
Maybank Research said the government is better off awarding more special draws. Its preferred NFO sector exposure is BToto.
The research house said its observations of Magnum and BToto results indicate that the NFO industry turned around in 2019 after more than a decade of decline.
“By our estimation, 3Q19 appears to be have been another good quarter for the NFO industry. The primary reason for this turnaround is more active enforcement against illegal NFOs since 3Q18, ” it said.
It pointed out the government stated before that its main motivation to ramp up enforcement against illegal NFOs is to raise tax revenues from legal ones.
“We maintain our 2019 industry gross NFO sales/draw growth forecast of 5%, ” it said.
With illegal NFOs being checked somewhat coupled with the fact that the last time NFO gaming tax rates were revised was more than nine years ago in June 2010, hence it does not discount the possibility that NFO gaming tax rates may be hiked during Budget 2020.
Recall that the casino duty rate was hiked 10ppts during Budget 2019. All else being equal, it estimates that every 1ppt hike in the gaming tax/pool betting duty rate will cut our Magnum and BToto EPS estimates by 7% each and Magnum and BToto TPs by a similar 7% each.
Maybank Research said NFOs moderated the impact of previous NFO gaming tax rate hikes in the past by cutting prizes.
“While that caused some gamblers to turn to illegal NFOs who offer larger prizes, we gather that the negative impact on legal NFOs may be minimised should enforcement against illegal NFOs remain active, ” it said.