Investment Highlights

• We met up with Sports Toto (ST) recently. According to Bloomberg, ST is currently trading at PE of 9.3x for FY24F and 9x for FY25F. In comparison, Magnum is trading at FY24F and FY25F PEs of 9.3x each.

• ST’s FY24F dividend yield is estimated to be 7.3%, which is marginally higher than Magnum’s 6.9%. We ascribe a 3- star ESG rating to ST.

• ST’s ticket sales are improving. We understand that currently, ticket sales per draw are 90% of pre-pandemic levels of RM19mil to RM20mil compared to 85% six months ago. Ticket sales per draw are anticipated to grow by 3% to 5% each, in FY24F and FY25F.

• We believe that ST has a larger population of young punters compared to its peers. This is due to the group’s portfolio of jackpot games, which can snowball to prize monies of more than RM50mil.

• We think that ST and Magnum have a market share of 40% each while Da Ma Cai’s market share is 20%. There have not been significant changes to ST’s market share in the NFO industry as there are only 3 players. Also, there has not been any launch of new or variation of NFO games in the past couple of years.

• Illegal NFOs are still a threat. Illegal NFOs are 2x to 3x bigger than the legal industry, which has revenue of RM8bil to RM9bil per year. It is difficult to deter illegal NFOs due to the small penalty of less than RM10,000.

• In July 2023, HR Owen opened its new headquarters, showroom and service centre in Hatfield, UK. Due to the depreciation and interest expenses for the new site, we believe that HR Owen would take time before reverting to its normal profitability of more than RM40mil per year. Recall that HR Owen’s pre-tax profit fell to RM0.4mil in 1QFY24 from RM11.7mil in 1QFY23.

• The site at Hatfield, which has a space of 110,000 sq ft, has 5 luxury showrooms. HR Owen is one of the top luxury car dealers in England. Some of the cars sold by HR Owen are Ferrari, Bentley and Lamborghini.

• ST is currently trading at a consensus FY24F PE of 9.3x, which is slightly below its 2-year average of 10x.

Source: AmInvest Research - 4 Jan 2024