Relatively muted to the reduction in special draws for 2023. On 5 Dec, PM/FM Datuk Seri Anwar Ibrahim announced that there will be only 8 special draws for CY23 (vs 22 in 2022). SPTOTO and MAGNUM’s share prices reacted negatively to the announcement, declining 4.1% and 5.1% respectively since. Nonetheless, we believe that the reduction in the number of special draws has minor impact on NFO earnings. Recall that NFOs have to pay an additional 10% as a special contribution to the Government on all special draw gross ticket sales (after deducting the 8% gaming tax). Because of the non-routine nature of special draws, we gather that special draws' sales tend to be lower than regular draws. In addition, special draws also cannibalise some of the sales from regular draws. Hence, we opine that the reduction in special draws would have minimal impact to NFO’s earnings. HLIB retains a Buy call with a TP of RM2.27, implying 40% upside.

Undemanding Valuation. At RM1.62, SPTOTO is trading at an undemanding 8.2x FY23 P/E (53.6% discount against 5-year average of 17.7x) vs Magnum’s FY23 P/E of 10.5x, supported by a generous 8.8% dividend yield. Under the current market volatility with an increasing risk of recession, we believe the stock will stand out due to its stable earnings profile supported by its resilient business segments. Overall, we view that current kneejerk reaction and weakness in share price present a good opportunity to accumulate.

Grossly oversold. After correcting 18.5% from 52-week high of RM1.99 to RM1.62 yesterday, SPTOTO is grossly oversold, with indicators on the mend. A successful breakout above RM1.66 immediate resistance will spur prices toward RM1.72-1.83- 1.90. Cut lost at RM1.49.

Source: Hong Leong Investment Bank Research - 7 Dec 2022