Results Review

• Sports Toto’s (SPToto) FY24 core earnings of RM230.0mn, after stripping out impairments on receivable and inventories of RM9.5mn, beat ours and consensus forecast by 9% and 14% respectively. The variance was largely due to higher-than-expected contribution from the number forecasting operation (NFO) segment.
• FY24 core profit was little changed at RM230mn on the back of 3.4% growth in revenue. This can be attributed to better luck factor that lifted the NFO earnings to offset the decline in contribution from car franchising segment.
• NFO. FY24 revenue rose steadily by 9.3% YoY to RM17.7mn/draw, driven by the irresistible jackpot amount (RM65mn in May). The rise in revenue/draw has mitigated the impacts of 8 lesser draws in FY24 and the rise in service tax to 8% from 6%, effective March 1. It also led to 2.4%-pts increase in EBIT margin to 13% in FY24.

• Car franchise. H.R. Owen’s FY24 revenue rose 5.0% YoY to RM3.2bn on the back of improved sales of new and used cars, along with favourable forex movement. However, the EBIT declined by 30.2% due to recognition of additional interest cost and depreciation post completion of new car showrooms in Hatfield Central.

• For this quarter, the company declared a fourth interim dividend of 2sen/share, bringing the total FY24 dividend to 10sen/share, which was 1 sen higher than the dividend for FY23.

Impact

• We fine-tune FY25-26 earnings projections after incorporating FY24 earnings. We expect FY25 earnings to decline due to normalisation of win percentage. Briefing highlights

• Management expects 2025 budget to be a non-event, especially on gaming tax and service tax. The rise in service tax in March has already resulted in higher cost of operations and this cost pressure would likely persist in future as chances of government reducing the taxes are low. We concur and believe there would be no new taxes or additional tax in 2025 to alleviate the cost of living.

• Management is optimistic that the recent Alor Setar High Court’s ruling on the ban of renewal of business premises license in favour of NFO players would lead to reopening of NFO outlets in Kedah, pending the disposal of the appeal and approval from the Ministry of Finance.

Valuation

• We raise SPToto’s DDM valuation to RM1.76/share (from RM1.61) after rolling forward the valuation base year to FY25 and factoring in the ESG premium. Maintain Hold

Source: TA Research - 26 Aug 2024