• Maintain BUY and MYR2.23 TP, 23% upside, with c.6% yield. Sports Toto’s FY22 (Jun) earnings beat our expectations, mainly due to higher- than-expected sales per draw and the luck factor. Its ticket sales continue to hover at 80-90% of pre-pandemic levels and we expect a gradual recovery. Its UK motor business disappointed, as margins were adversely impacted by inflationary cost pressures.

• Beat expectations. 4QFY22 core profit of MYR48m brought FY22 core profit to MYR163m, beating our expectations at 116% of full-year forecasts, but broadly meeting Street’s expectations at 95%. SPTOTO also declared a 3 sen interim dividend, with a share dividend distribution of c.11.16m shares on the basis of one treasury share for every 120 existing ordinary shares held, which translates to c.1.7 sen per share. Hence, the total 4QFY22 DPS declared amounted to 4.7 sen, bringing FY22 DPS to 8.7 sen, exceeding our 6 sen estimate.

• Gaming segment EBIT fell 14% QoQ, as 3QFY22 saw the prolonged Supreme 6/58 Jackpot run. Based on our calculations, ticket sales are still hovering at 80-90% of pre-pandemic levels. While it has been at such levels for the past two quarters (excluding the extraordinary 3QFY22), we note that there has been a gradual improvement. We also highlight that SPTOTO’s 80-90% level has been outperforming Magnum’s (MAG MK, NEUTRAL, TP: MYR1.55) 70-80%, which we partially attribute to SPTOTO’s stickiness after the prolonged jackpot run. As 4QFY22 saw the reopening of borders and a broad resumption of economic activity, we think that any recovery in ticket sales from this point onwards will be gradual. Just like Magnum, SPTOTO seems to be struggling to fully recover to pre- pandemic levels, likely due to the continued impact of illegal number forecast operators (NFOs) and the lack of foreign labour punters.

• HR Owen (its UK motor vehicle dealer) saw a 13% decline in revenue and 59% decline in EBIT, as its EBIT margin fell 2.4ppts to 2%, which management attributed to cost pressures. Moving forward, we think that luxury and supercar sales in the UK should remain relatively resilient. However, we turn more cautious on its EBIT margin, should the said cost pressures persist.

• Forecast. We maintain our earnings estimates pending a briefing today. We keep our BUY call on SPTOTO, mainly for its attractive 6% FY23F yield. Our unchanged DCF-derived MYR2.23 TP includes a 0% ESG discount/premium.

• 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.

Source: RHB Research - 24 Aug 2022