3QFY22 net profit, which jumped 49% to RM79.6m, topped both our forecast as well as consensus thanks largely to stronger-than-expected ticket sales and HRO earnings. 3QFY22 average ticket sales per draw hit 96% of pre- COVID-19 levels, attributable to higher accumulated jackpot prizes, and is on track of full recovery in 1HFY23. We continue to rate the stock an OP with a higher TP of RM2.33 for its above-average dividend yields.

3QFY22 beat expectations… with net profit jumping 49% QoQ to RM79.6m totalling 9MFY22 net income to RM115.2m which made up 71%/78% of house/street’s FY22 estimates. The impressive set of 3QFY22 results was attributable to stronger NFO ticket sales and HR Owen (HRO) earnings where 9MFY22 average ticket sales per draw of RM16.7m and HRO’s operating profit of RM84.6m were higher than our FY22 assumption of RM16.0m and RM78.8m, respectively. Meanwhile, it declared 3rd interim NDPS of 2.0 sen (ex-date: 29 Jun; payment date: 22 Jul), tallying YTD 9MFY22 to 4.0 sen vs. 8.0 sen paid in 9MFY21.

…thanks to strong ticket sales and HRO earnings. 3QFY22 net profit soared 49% QoQ to RM79.6m on the back of 39% hike in revenue. This is largely due to stronger NFO ticket sales which jumped 38% on the back of higher accumulated jackpot prizes where Supreme Toto 6/58 jackpot prize hit the highest payout of RM97.7m on 30 May. As such, 3QFY22 average ticket sales per draw surged 45% to RM20.6m from RM14.2m with slightly weaker luck of 63.7% from RM63.1%. On the other hand, HRO also reported EBIT which more than doubled to RM39.0m on higher car sales after the preceding quarter which was hit by operations restrictions on rising COVID-19 cases.

3QFY22 ticket sales almost back to pre-COVID-19 levels. Besides the higher accumulated jackpot prizes, 3QFY22 NFO ticket sales also benefited from the CNY effect. The average ticket sales per draw of RM20.6m was at 96% of pre-COVID-19 (1HFY20 of RM21.4m), against RM11.6m in 3QFY22 which was affected by MCO 2.0 closures for all states except Sarawak. As such, 3QFY22 net profit surged 326% YoY from RM18.7m in 3QFY21. Meanwhile, HRO operating profit also jumped 58% on the back of 42% hike in revenue. However, YTD, 9MFY22 net profit fell 24% to RM115.2m from RM151.6m as revenue declined 20% owing to MCO 3.0 lockdown which resulted 9MFY22 having only 96 draws against 129 draws last year.

Ticket sales recovery on track. While we expect a weaker 4QFY22 ticket sales after a strong 3QFY22, we believe SPTOTO’s ticket sales recovery is on track to full recovery in 1HFY23 and in fact its recovery is better than its peer MAGNUM (MP; TP: RM1.93). Post-3QFY22 results, we raised FY22-FY23 estimates by 12%-10% on the back of higher ticket sales per draw assumption to RM16.3m-RM18.7m from RM16.0m-RM17.4m and higher HRO sales growth of 15%-15% from 5%-15% previously. NDPS is also upped proportionally based on unchanged 80% payout.

Maintain OP for earnings recovery. We continue to like this high yielding stock which is supported by the recovery of ticket sales, making it a good avenue for income seekers. Post earnings revision, our DCF-derived TP is raised to RM2.33 from RM2.22. As such, our OP rating is maintained which is supported by its above average yield of >8% in FY23. Risks to our call include a slower-than-expected ticket sales recovery and unfavourable luck factor.

Source: Kenanga Research - 24 May 2022