SPTOTO’s 9MFY23 results missed expectations, largely due to  extremely high prize payout in 3QFY23. However, it managed to  achieve the second highest average ticket sales per draw of  RM19.2m for the past three years, recovering to 92% of the pre-pandemic level. We are ceasing coverage on SPTOTO. Our last  recommendation for the stock was OUTPERFORM with a TP of  RM1.95.

9MFY23 net profit of RM159.6m fell short of expectations, making up  only 59% and 69% of our full-year forecast and the full-year consensus  estimate, respectively. This was mainly due to a bad luck factor in  3QFY23 as the estimated prize payout ratio (EPPR) surged sharply to  71.2%, averaging YTD 9MFY23 EPPR to 65.4% against our FY23  assumption of 63%. Meanwhile, it declared a third interim NDPS of 2.0  sen (ex-date: 28 Jun; payment date: 21 Jul) tallying 9MFY23 NDPS to  6.5 sen which was higher than the 4.0 sen paid in 9MFY22.

YoY, 3QFY23 revenue fell 4% attributed to: (i) lower NFO ticket sales  by 11% due to a lower draw of 41 vs. 43 as well as lower average  ticket sales per draw of RM19.2m vs. RM20.6m, and (ii) lower car sales  from HR Owen (HRO) by 4% on unfavourable GBP conversion to  MYR. 3QFY23 net profit contracted 71% to RM23.3m largely due to the  higher EPPR mentioned above which saw NFO operating profit  plunging 70%.

YTD, 9MFY23 revenue jumped 19% mainly driven by higher ticket  sales as during the MCO 3.0 nationwide lockdown 1QFY22, 37 draws were cancelled. 9MFY23 net profit leapt 39%, boosted by higher NFO  ticket sales though partially offset by lower HRO earnings on the  weakening of GBP against MYR as well as higher operating and  interest cost which was due to interest rate hike.

QoQ, 3QFY23 revenue grew 18% led by HRO (+39%) on higher car  sales but NFO ticket sales fell 4% on lower draws of 41 vs. 48. Nonetheless, average ticket sales per draw improved 12% to  RM19.2m, recovering to 92% of pre-COVID-19 level, from RM17.1m in  2QFY23. Meanwhile, net profit plunged 64% largely due to the  abovementioned poor luck factor which saw NFO operating profit  tumbling 69%.

We are ceasing coverage on SPTOTO. Our last recommendation for  the stock was OUTPERFORM with a TP of RM1.95.

Source: Kenanga Research - 24 May 2023