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Keep BUY, new MYR2.23 TP from MYR2.20, 17% upside. On 30 May, ChinaPress reported that the number of special draw days allowed in 2022 has been increased to 22 days from 11 days. We are positive on this development, as it is earnings accretive. We continue to like Sports Toto for the higher growth exposure provided by its other segments, and the upside from the increase in special draw days, supported by a decent 3-6% yield.
Increase in special draws. On Monday, ChinaPress reported that the number of special draw days allowed in 2022 has been increased to 22 days from 11 days. The news article quoted sources from the number forecast operator (NFO) industry. To recap, when the Pakatan Harapan administration took office in 2019, it reduced the number of special draw days to 11 from 22, and further slashed it to eight days in 2020. Based on the news report, there will be a resumption to 22 special draw days per year. As there have only been five special draws YTD, this suggests that there will be 17 more in the remaining months of 2022. Figure 1 is a snapshot of the news article that illustrates the remaining special draws this year.
Forecast. After raising the number of special draw days to 22 in 2022, and for all future years, we increase SPTOTO's FY22-24F earnings by 1-2%. Note that special draws tend to be of lower margin vs normal draws, as the NFOs are required to pay an additional 10% tax as a special contribution to the Government for all special draw gross ticket sales (after deducting the 8% gaming tax). The higher earnings raise our DCF TP to MYR2.23 from MYR2.20. Our TP includes a 0% ESG premium/discount, based on its 3.0 ESG score, which is at the country median.
We maintain BUY on SPTOTO, as apart from its continued ticket sales recovery, we like its growth exposure from its other segments, such as its UK motor dealership and hotel & gaming businesses in Berjaya Philippines. We also believe that the current share price has yet to price in the higher number of special draw days, while offering a decent FY23F 6% yield.
Key risks include the reduction in the number of special draw days, another COVID-19 wave leading to outlet closures, changes in gaming tax, and the luck factor.
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