NFOs on strong recovery trajectory

Pent-up demand seen to bolster sales

PETALING JAYA: Numbers forecast operators (NFOs) saw their shares trade largely in the positive territory as reopening of their outlets yesterday spurred sentiment.

However, the counters lost some ground at the end of the day in tandem with overall market weakness.

Magnum Bhd’s shares closed unchanged at RM2.06, off an intra-day high of RM2.10, while Berjaya Sports Toto Bhd’s (BToto) shares ended three sen higher at RM2.03, off an intra-day high of RM2.05.

NFOs are expected to stage a strong rebound in income in the coming months, given the reopening of most their outlets yesterday.

Pent-up demand from punters and the overall inelastic nature of the business suggest that the recovery in ticket sales by NFOs would likely be swift.

As seen in the second half of last year, post-movement control order (MCO) 1.0, ticket sales recovered strongly, and quickly returned to about 80% of pre-pandemic levels within three months of reopening.

A majority of NFO outlets had been allowed by the government to resume operations yesterday, following a nationwide closure since June 1 this year to comply with stricter measures to curb the Covid-19 pandemic. The first draw will be held today.

RHB Research said it was positive on the latest development, citing the reopening of NFO outlets came slightly earlier than its expectations.

The brokerage had previously assumed NFO outlets would remain closed until end-September.

“As NFO outlets are now able to reopen, we can expect ticket sales to recover strongly, on pent-up demand and the overall inelastic nature of the business,” RHB Research said.

It noted that in the second half of 2020, NFOs saw ticket sales recover to about 80% of pre-pandemic levels within three months of reopening after MCO 1.0 was lifted.

Further earnings upside could come from the ongoing clampdown on illegal gambling and legislation of stricter gambling laws, RHB Research said.

It has maintained a “buy” call on both Magnum and BToto, with target prices of RM2.61 and RM2.36, respectively.

RHB Research noted that both NFO operators offered attractive dividend yields, estimated at 6% to 7% for the next two years.

“Magnum remains our preferred pick, being a pure-play NFO.

“Further earnings upside could come from the legislation of stricter gambling laws, and the potential monetisation of its stake in U-Mobile,” RHB Research said.

The brokerage has raised its earnings forecast for Magnum for the financial year ending Dec 31, 2021 (FY21) by 14.4% after raising draws assumption by eight days to factor in the slightly earlier-than-expected reopening of outlets.

As for BToto, the earnings forecast for the financial year ending June 30, 2021 had been raised by 4.8% to factor in the latest news.

RHB Research noted a joint venture (JV), involving BToto’s 39.99%-owned associate Philippine Gaming Management Corp (PGMC), last week received a notice of award from the Philippine Charity Sweepstakes Office or PCSO for the procurement of a five-year lease of the customised lottery system.

PGMC has a 49% stake in the JV, which won the contract, valued at a total 5.8 billion peso (RM480mil).

“While we are positive on PGMC getting the contract extension, its effective win under the JV is only 2.8 billion peso (RM235mil or a 49% stake).

“This is below our expectations, as we had previously anticipated that PGMC would procure an exclusive contract,” RHB Research said.

As such, the brokerage has lowered its FY23-FY24 earnings forecast for BToto by 1.2%.

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