Sports Toto Bhd (Sports Toto) reported a net profit of RM79.6m for 3QFY22, jumping 326% YoY due to stronger contribution from both the gaming and motor dealership operations following a full resumption of business. The gaming operations also benefited from seasonal uptick in sales due to the festive period in February. The results surpassed our expectations but were within market estimates, accounting for 83% and 79% of full-year forecasts respectively. This was mainly due to stronger-than-expected contribution from the gaming business due to improved margin i.e lower prize payout. As such, we raise our FY22-23F earnings forecasts by 7-13% factoring in higher gaming profit due to higher margin assumption. Our DCF-based TP is revised to RM2.20. Given a 15% upside potential, we upgrade Sports Toto to Trading Buy. A third interim dividend of 2.0sen per share was declared (3QFY21: 1.50sen per share).

• 3QFY22 revenue rose 54% YoY to RM1.7bn, attributable to stronger contribution from Malaysia’s gaming operations as well as motor dealership sales in the UK. Despite having lower number of draws, Sports Toto Malaysia posted a 70.3% jump in revenue due to better sales from lotto games and an overall increase in sales during the festive period in February 2022. In the previous year’s corresponding quarter, performance was also impacted by lockdown measures. HR Owen recorded revenue growth of 41.6% YoY as operations were running at full swing with stronger sales from both new and used car sectors.

• 3QFY22 net profit rose 326% YoY. In tandem with a jump in revenue and coupled with lower prize payout, pretax profit of Sports Toto Malaysia soared 262% YoY. Meanwhile, HR Owen’s pretax profit increased by 64.3% YoY mainly due to stronger sales and higher profit margin. As a result, Group’s net profit surged 326% to RM79.6m.

• Outlook. Since the resumption of its operations in September 2021, revenue has so far recovered to 85% of pre-pandemic level. As we have fully transitioned to the endemic phase of Covid-19, we believe Sports Toto could revert to normalcy by FY23F. Number forecasting operations are often seen as recession-proof due to its relatively small betting size. Hence, we reckon that Sports Toto’s gaming business should be more resilient compared to other sectors during a period challenging economic environment.

Source: PublicInvest Research - 24 May 2022