NFO earnings resilient, likely to bounce back

The earnings of NFOs will remain resilient and bounce back if last year’s implementation of the MCO is anything to go by.

PETALING JAYA: The reintroduction of the movement control order (MCO) in several parts of the country will see about half of the numbers forecast outlets (NFOs) shut during that period, but analysts are still positive on the sector.

The earnings of NFOs will remain resilient and bounce back if last year’s implementation of the MCO is anything to go by.

Following the two-week MCO which began on Jan 13, Maybank IB Research said it is cutting its FY21 estimated earnings per share for Magnum Bhd and Berjaya Sports Toto (BToto) by 18% and 26%, respectively.

However, it is leaving FY22 estimated (EPS) unchanged as “we remain positive on the earnings resilience of NFOs”.

“Thus, we trim Magnum’s and BToto’s discounted cash flow (DCF)-based target prices by only one sen each to RM2.50 and RM2.39 respectively, ” the research house said in a report. In the note, Maybank IB understood that Damacai would shut all its NFO outlets and not just those in the affected states and territories involving Penang, Selangor, Kuala Lumpur, Putrajaya, Labuan, Melaka, Johor and Sabah.

Analysts also did not rule out the possibility that the current MCO will last longer than the scheduled two weeks, as was the case in March last year that saw NFO outlets only reopening 13 weeks later on June 17,2020.

Assuming the NFO outlets in the affected states or territories are shut for 13 weeks, the players would have to forego 46 draws (39 normal draws and seven special draws) in 2021, said Maybank IB.

Before the latest MCO, its channel checks showed that most NFOs’ gross sales or draw have recovered to 85%-90% of pre-Covid-19 levels.

Meanwhile, Public Investment Bank research estimated that should the MCO be implemented over a one-month period, BToto’s FY21 forecast earnings would see a 6% reduction.

“Despite the near term hiccups, we continue to believe that BToto’s business is relatively more resilient compared with casino operators within the gaming sector as it should recover quicker once all business operations are allowed to resume.”

The research house has revised up its target price from RM2.60 to RM2.80.

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