Sports Toto Bhd’s (Sports Toto) 4QFY23 net profit grew by 169% QoQ to RM62.3m mainly on lower prize payout and higher motor dealership margin. Gaming profit jumped from RM29.8m in the previous quarter to RM70.6m in 4QFY23. For full-year FY23, results came in above our expectations but within consensus estimates at 115% and 105% respectively. The discrepancy in our forecast was largely due to lower-than-expected prize payout ratio. For FY24-25F, we tweak our earnings estimates by ~1% as a result of housekeeping changes. A fourth interim dividend of 2.5 sen per share was declared, bringing total dividend to 9 sen per share for FY23. Although earnings have almost returned to its pre-pandemic level, FY23 dividend payout of 54% remains below historical average of 80%. Maintain Neutral with an unchanged TP of RM1.40.

• 4QFY23 revenue dropped 2.3% QoQ, mainly due to lower sales reported by STM Lottery, though partially mitigated by improved revenue contribution from motor dealership business. STEM Lottery’s revenue fell 10.6% on fewer number of draws conducted during the quarter. Meanwhile, HR Owen posted a 5.9% increase in revenue due to favourable foreign exchange effect.

• 4QFY23 net profit surged 169% QoQ, mainly due to lower prize payout and higher motor dealership margin with lower operating expenses incurred. Restoration cost was lower compared to what was provided for, while lease related expenses have also declined following the relocation of certain showrooms and aftersales services sites to the Hatfield Centre.

• Cross shareholding within the Berjaya Group of companies. Sports Toto has recently announced related party transactions involving the acquisitions of shares in sister companies i.e. 7-Eleven Malaysia (SEM) and Berjaya Food Bhd (BFood). Following these acquisitions which amounted to a total sum of RM38.8m, Sports Toto effectively holds a 2.3% and 0.4% equity interest in SEM and BFood respectively. While management believes these investments are in the best interest of the group, its cash reserves could be better served paying higher dividends to shareholders. The group has yet to restore its dividend payout ratio to the pre-pandemic level of c.80%, though FY23 earnings has reverted close to the pre-pandemic level.

Source: PublicInvest Research - 24 Aug 2023