Sports Toto Bhd (Sports Toto) posted an 8.4% YoY growth in 4QFY24 net profit on the back of higher gaming profit due to lower prize payout. For FY24, net profit came in above our expectation at 110% of our full-year forecast but within consensus estimates. We attribute this to higher-than-expected gaming revenue as well as lower prize payout ratio. We raise our FY25-26F earnings forecasts by an average of 8% as we increase our revenue per draw assumption given the gradual recovery in ticket sales. As such, we revise up our DCF-based TP to RM1.50. A fourth interim dividend of 2.0sen per share was declared (4QFY23: 2.5sen per share). This brings total dividend per share to 10.0sen (including first interim share dividend that equates to 3.0sen per share), higher than FY23’s 9.0sen per share. Maintain Neutral on Sports Toto.

• 4QFY24 revenue improved 2.1% YoY. STM Lottery reported a strongrevenue growth of 9.8% due to higher sales per draw with 1 additional drawconducted. Meanwhile, HR Owen revenue dropped 5.1% due to lower salesvolume for both new and used car segments due to the phasing out of certaincar models at the tail-end of their product life-cycle.

• 4QFY24 net profit rose 8.4% YoY, mainly boosted by stronger gaming profitdue to higher revenue and lower prize payout. Gaming profit rose 47.6% YoYto RM102.3m. Motor dealership profit fell from RM32.8m in 4QFY23 toRM21.2m in the current quarter due to higher operating cost and higherdepreciation incurred following the completion and full operation of theHatfield Centre.

• Outlook. Its gaming operation is likely to remain stable with ticket salesgradually recovering to 92% of pre-pandemic level. The prevalence of illegalgaming operations will continue to be a perennial issue, estimated at 2-3x thesize of the legal industry’s market share of around RM9bn a year. The onlyway to tackle and deter the growth of the illegal market is through stricterenforcement and penalties, where the four Gaming Acts are currently beingreviewed by the government. Meanwhile, the motor distribution business maybenefit from a lower interest rate but this may be offset by the strengtheningof the ringgit, which could lead to unfavourable foreign exchange effect in thecoming quarter.

Source: PublicInvest Research - 26 Aug 2024