Sports Toto unabated by additional service tax as earnings triple in 3Q

PETALING JAYA: The impact of additional 2% service tax appears to be negligible for Sports Toto Bhd, going by its third quarter ended March 31, 2024 (3Q24) results.

The number forecast operator (NFO), which is majority owned by Tan Sri Vincent Tan’s Berjaya Corp Bhd, reported a net profit of RM68.5mil, nearly tripled that from a year ago.

This brought nine-month (9M24) profit to RM156.1mil, which was within analysts’ expectations.

For 3Q24, the company announced a third interim dividend of three sen per share, bringing the year-to-date cumulative cash and stock dividends to eight sen a share.

The improved performance was due to robust recovery in 4D lottery sales that more than offset margin compression on the car sales of the group’s UK-based car franchise H.R. Owen plc.

TA Research said the 9M24 performance eased concerns over the impact of the additional 2% service tax, which was disclosed under Budget 2024, on the company’s future earnings.

The research firm said the group’s margin expansion on lottery sales in 3Q24 was a good indication that the additional service tax can be outweighed by robust growth in lottery sales.

On the other hand, TA Research said H.R. Owen would likely see persistent margin pressure until it achieves economies of scale.

This comes following the adoption of an asset ownership model by H.R. Owen, which has resulted in increased operating leverage stemming from additional depreciation and other fixed costs, it added.

Despite earnings beating expectations, Hong Leong Investment Bank (HLIB) Research said the stock lacks re-rating factors.

It said the NFO segment benefited from seasonally stronger sales in 3Q24, but this is likely to normalise in 4Q24.

“Similarly for H.R. Owen, sales volume benefited from seasonally stronger number plate changing month, which should also normalise in 4Q24.

“Furthermore, the segment could continue to be affected by high financing costs in the UK, while at the same time juggling higher depreciation and operating costs,” said HLIB Research.