Investment Highlights

• We met up with Sports Toto (ST) recently. Based on Bloomberg consensus estimates, ST is trading at FY23E PE of 9.1x and FY24F PE of 8.5x. FY23E dividend yield is estimated to be 7%. We attach a 3-star ESG rating to ST.

• We understand that the size of the illegal NFO (number forecasting operator) market is now twice the size of the legal industry of RM8bil to RM9bil. The illegal NFO industry proliferated during the Covid 19 lockdown in 2020 and 2021.

• We gather that during the period, illegal operators had set up apps and gaming websites to attract punters. Punters could not buy tickets at the legal outlets as they were closed during the movement restriction period.

• As a result, ST’s ticket sales per draw have not gone back to pre-pandemic levels. Currently, the group’s ticket sales of RM16mil-RM17mil per draw account for only 85% of prepandemic levels.

• A catalyst would be new gaming legislation, which may introduce stricter penalties and enforcement. Presently, the fine for an illegal lottery operator is only between RM5,000 and RM10,000. The current 4 gaming acts may be combined into one. On 29 May 2023, the Prime Minister said that the Common Gaming Houses Act 1953, Pool Betting Act 1967, Lotteries Act 1952, and Betting Act 1953 are being reviewed. There is no indication as to when the new legislation would be passed.

• In terms of market share, we understand that ST and Magnum are equal while Da Ma Cai is the smallest operator. We think that the market share of ST and Magnum could be 40% each vs. 20% for Da Ma Cai.

• We gather that the reduction in the number of special draws would not affect NFOs significantly. Profit margins from special draws are small as NFOs have to pay an additional 10% contribution to the government. Recall that in December 2022, the number of special draws in 2023E was reduced to 8 from 22.

• Looking ahead to FY24F, ST’s gross ticket sales per draw are expected to improve by 3% to 5%. The minimum bet is still small at RM1.00 and average spending per person of RM10 to RM15, is anticipated to sustain on the back of ST’s large variety of games.

• ST Is Currently Trading at a Consensus FY24F PE of 9x, Which Is Below Its 2-year Average of 16x.

Source: AmInvest Research - 5 Jul 2023