Sports Toto Bhd’s (Sports Toto) 1QFY24 net profit was down 15.9% YoY to RM60.2m due to lower gaming profit and higher finance cost. Despite a 7.2% increase in gaming revenue, profit fell 4.7% on higher prize payout. Results were in line with our and market expectations, accounting for 28% of full-year estimates. Our earnings forecasts remain unchanged. The group declared a first interim share dividend of 26.5m shares on the basis of 1 treasury share for every 50 existing shares held. This equates to approximately 3.0sen per share (1QFY23: 2.0sen cash per share). Maintain Neutral with an unchanged TP of RM1.40.

• 1QFY24 revenue rose 12.4% YoY. STM Lottery reported a revenue growth of 7.2% despite fewer number of draws conducted (42 draws compared to 46 draws in 1QFY23), driven by improvement in average sales per draw and higher accumulated jackpot prizes in both digit jackpot and lotto games. Meanwhile, HR Owen posted a 17.1% increase in revenue due to stronger new car sales and favourable foreign exchange effect.

• 1QFY24 net profit fell 15.9% YoY, mainly dragged by higher prize payout and higher cost of borrowing due to interest rate hikes. In addition, HR Owen posted higher operating expenses, which we attribute to its new multi-purpose showrooms, service centres and headquarters at Hatfield.

• Outlook. The legal numbers forecasting operator (NFO) business is seen as a matured industry with limited variation to its product offerings. As the operations are largely governed by authorities, it remains a challenge for NFO operators to introduce new games in order to compete with the illegal operators. Over the years, legal operators have been losing market share as the preferred mobile betting is prohibited under the Pool Betting Act 1967 while illegal operators are not subject to the same restrictions, leading to an uneven playing field. We believe the proliferation of illegal activities will be restricted if legal operators are allowed to operate on online platforms, which entails amendments to the outdated legislation.

Source: PublicInvest Research - 22 Nov 2023