Unfavourable odds for NFO industry

PETALING JAYA: Business in the number forecast operator (NFO) industry has yet to recover to its pre-Covid-19 levels, causing analysts to slash earnings estimates and downgrade the sector.

Maybank IB Research, in its sector report to clients yesterday, said five months after NFO outlets reopened following the relaxation of the country’s movement control order, gross NFO industry sales/ draws have yet to recover beyond 80%-85% of pre-closure levels.

“While relatively resilient, the NFO industry is not immune to the Covid-19 pandemic, ” it told clients, while revising its 2020 gross NFO industry sales/draw growth forecast down 15% from an earlier 10%.

Consequently, it also cut Magnum Bhd’s earnings per share (EPS) estimates by 8%-15%, dividend per share (DPS) estimates by one to two sen and stock’s target price by 13% to RM2.02 while for Berjaya Sports Toto Bhd, it cut its EPS estimates by up to 17%, DPS estimates by one to two sen and its target price for the company’s stock by 28% to RM1.95.

Nevertheless, Maybank IB highlights that despite its lower DPS estimates, Magnum and Berjaya Sports will still offer dividend yields of about 6% per annum from FY2021 onwards.

“Thus, investors may want to hold on to Magnum and Berjaya Sports for dividend yields, ” it said.

Between the two, it said it preferred Magnum thanks to a potential listing of 6%-owned U Mobile and a possible resolution to its second tax penalty.

“If U-Mobile is listed and the market value of Magnum’s 6% shareholding exceeds the RM385.4mil fair value ascribed in its accounts and/or its second tax penalty is resolved at a discount, we will not rule out more upside to Magnum’s target price.”

In its sector report, Maybank IB said gross industry jackpot sales stood at RM8.9mil on March 15, the last draw before NFO outlets were ordered to shut.

Gross industry jackpot sales stood at RM4.3mil on June 17, the first draw after NFO outlets reopened, it added.

“This was approximately half of the pre-closure level.

“Gross industry jackpot sales kept ramping up until mid-Sep 2020 but reversed course thereafter, ” it said.

Since then, we opine that gross industry jackpot sales have struggled to recover to pre-closure levels, the research house said.

It said while it requires time for jackpots to ‘snowball’ into large enough amounts to attract punters again, it believes that examining gross industry jackpot sales for every RM1 of first prize jackpot is “very telling.”

“Pre-closure, we estimate that NFOs could attract 10 sen to 21 sen of gross industry jackpot sales for every RM1 of first prize jackpot.

“Post-reopening, we estimate that NFOs could only attract a lower and narrower nine sen to 15 sen of gross industry jackpot sales for every RM1 of first prize jackpot.”

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