• BUY, new MYR2.20 TP from MYR2.39, 15% upside, c.6% FY23F (Jun) yield. 3QFY22 earnings beat our forecasts on stronger-than-expected UK dealership sales and margins, although the dividend missed expectations. While ticket sales rebounded strongly during the quarter, we note that there was a prolonged jackpot run that supercharged ticket sales to pre-pandemic levels, and are cautious about a potentially slower-than-expected underlying ticket sales recovery. We maintain our rating on Sports Toto for the continued growth of its UK motor dealership and 6% FY23F yield.

• Exceeded expectations. 9MFY22 core profit exceeded our expectations at 85% of our full-year estimate, but was within Street’s at 78%. The positive deviation is attributable to the stronger-than-expected contribution from the UK motor dealership segment, owing to the better-than-expected profit margins from the used car segment. Nonetheless, interim DPS of 2 sen brings 9MFY22 DPS to 4 sen – below our FY22F of 8 sen – as the stronger motor segment does not directly lead to dividend payouts.

• Results highlights. YoY, 3QFY22 revenue rose 54% on higher gaming (+70%) and motor (+42%) revenue. The jump in gaming revenue was from higher ticket sales, driven by the prolonged Supreme 6/58 Jackpot run that led to a historical high accumulative prize of c.MYR98m. Consequently, gaming EBIT jumped 250%, owing to the operating leverage. On the other hand, the strong increase in motor revenue, coupled with higher margins from the tight vehicle supply, lifted motor EBIT by 58%.

• Continued ticket sales recovery and strong motor segment. Toto ticket sales should continue to gradually recover. However, we are cognisant that this quarter’s ticket sales are not representative of the underlying recovery, as it was distorted by the aforesaid historic jackpot run. Taking a cue from Magnum’s (MAG MK, NEUTRAL, TP: MYR1.95) 1QFY22 results, we believe the underlying ticket sales recovery will take longer than expected, as punters may be financially worse off and/or have increasingly turned to illegal number forecast operators (NFOs). Meanwhile, strong demand for used luxury cars should continue to drive its motor segment’s earnings, as the automotive industry continues to grapple with supply chain issues.

• Earnings forecasts. Post results, we raised our FY22F core earnings by 3% to account for the stronger-than-expected motor sales and margins. As 9MFY22 DPS fell short of expectations, we lowered FY22F-24F DPS to 6- 15 sen from 8-16 sen. To account for the current market sentiment, we have raised the risk-free rate in our DCF calculation. Therefore, we lowered our TP – which includes a 0% ESG premium/discount, based on its 3.00 ESG score – to MYR2.20. We maintain BUY on SPTOTO mainly premised on: i) Continued growth of its UK motor dealership segment and ii) its FY23F 6% yield. Key risks: Gaming taxes/regulations changes and another COVID-19 wave.

Source: RHB Research - 24 May 2022