Political risk clouds NFOs


According to Maybank IB Research, about 50% of NFO earnings, mainly that of Berjaya Sports Toto and Magnum, could potentially be at risk.

PETALING JAYA: Number forecast operators (NFOs) could face some downside risk in the event of a change in Selangor, Penang and Negri Sembilan state governments.

These three states, together with Kedah, Kelantan and Terengganu, are widely expected to dissolve their state assemblies in around a month’s time to pave the way for state elections in the third quarter of this year.

According to Maybank Investment Bank (Maybank IB) Research, about 50% of NFO earnings, mainly that of Berjaya Sports Toto Bhd (BToto) and Magnum Bhd, are at risk should state governments of Selangor, Penang and Negri Sembilan change, leading to the rise of Islamic party playing a more prominent role in state matters.

The brokerage’s analysis showed that if the green wave only occurred in Selangor, BToto and Magnum’s long-term earnings estimates could be cut by a still deep 33% and 26%, respectively.

With no near-term positive catalysts in sight, Maybank IB Research tactically downgraded the NFO subsector of the gaming industry to “negative” from “neutral”.

It also downgraded its recommendations on both BToto and Magnum to “sell” from “hold” previously.

The target prices for both counters were also cut, with BToto now at RM1.04 from RM1.40 previously, and Magnum now at 91 sen from RM1.20 previously.

Maybank IB Research noted that BToto’s NFO outlets in Selangor, Penang and Negri Sembilan accounted for 22%, 8% and 5% of the group’s total NFO outlets, while Magnum’s NFO outlets in Selangor, Penang and Negri Sembilan account for 18%, 9% and 6% of its total NFO outlets.

“Assuming average NFO sales and draw outlets are uniform throughout the country and NFO outlets are shut on Jan 1, 2024, our long-term earnings estimates for BToto and Magnum could be cut by 52% and 48%, respectively, should all the aforementioned state governments change,” the brokerage wrote in its report.

“Should just the Selangor state government change, our BToto and Magnum long-term earnings estimates could be cut by a still deep 33% and 26%, respectively,” it added.

Maybank IB Research said it saw no near-term positive catalysts in sight to offset the risk of a green wave in the three states.

“Google Trends imply to us that NFO sales for BToto and Magnum remain plateaued at around 80% and 70% of pre-Covid levels,” it said.

“While it is an open secret that the NFOs are lobbying the Finance Ministry (MoF) to legalise mobile betting, our channel checks reveal that the MoF will not legalise it before the state elections, if at all,” it added.

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