PETALING JAYA: The conclusion of the state elections over the weekend will mark the end of a period of uncertainty for number forecast operators (NFOs).
The NFO outlets in the three states of Penang, Selangor and Negri Sembilan account for 22%, 8% and 5% respectively of Sports Toto Bhd’s total NFO outlets.
Maybank Investment Bank Research (Maybank IB) in a report raised its long-term earnings per share (EPS) and dividend per share (DPS) estimates for Sports Toto by 9% and discounted cash flow target price of RM1.52 a share from RM1.04 a share.
With a 7% upside potential, the research house upgraded Sports Toto to a “hold” from a “sell’’ call, previously.
It said gross NFO sales, draw and outlet came in at 88% of third-quarter financial year 2020 (3Q20) pre-pandemic levels or eight percentage points more than it had expected, despite the shuttering of 20 NFO outlets in Kedah from Jan 1, 2023.
Maybank IB raised its gross NFO sales, draw and outlet forecasts to 85% from 80% from 3Q23.
It said the net impact is higher for EPS in FY23, FY24 and FY25 by 5%, 9% and 9%, respectively, while DPS for FY24 and FY25 is at 9% and 9%, respectively.
The research house cut its FY23 DPS estimate by 17%, as Sports Toto will not “make up” for the low DPS in the first three quarters of FY23.
Sports Toto is the largest legal NFO in Malaysia with 652 outlets.
The legal NFO industry has matured, but has also been slowly ceding market share to illegal operators due to lower prize payouts.
The challenges are in introducing new and popular games and the authorities clamping down on illegal NFOs.
Maybank IB forecast Sports Toto’s FY23 EPS to recover 29% year-on-year due to non-recurrence of the full movement control order and Cukai Makmur.
Its balance sheet was in a net debt position of RM1.11bil or 82 sen per share as at end-3Q23.