THE additional number of special draws slated for 2022 should be earnings accretive for Malaysia’s network forecast operators (NFOs) even though they tend to commands lower margins compared to fixed draws (ie. those scheduled for Wednesdays, Saturdays and Sundays).

On 30 May, China Press – citing sources from the number forecast operator (NFO) – 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 should help lift ticket sales for the NFOs and provide a much-needed boost to the sector which has been adversely affected by COVID-19,” opined RHB Research analysts Jim Lim Khai Xhiang and Lee Meng Horng in a gaming sector update.

“As there have only been five special draws year-to-date (YTD), this suggests that there will be 17 more in the remaining months of the year.”

To recap, when the Pakatan Harapan administration took office in 2019, it reduced the number of special draw days to 11 from 22 before further slashed it to eight days in 2020. The Government later increased the number of special draw days back to 22 in 2021.

However, owing to the movement restrictions during the year, there were only 15 special draw days in 2021. Subsequently, the Government reduced the special draw days to 11 for 2022.

“Special draws tend to be of lower margin vs normal draws as the NFOs need to pay an additional 10% tax as a special contribution to the Government on all special draw gross ticket sales (after deducting the 8% gaming tax),” explained RHB Research.

“Historically, the Government has turned to special draws to shore up its coffers.”

After raising the number of special draw days to 22 in 2022 and for all future years, RHB Research increased Magnum Bhd’s FY2022-FY2024F earnings by 2%-3% and that of Sports Toto Bhd’s FY6/2022-FY6/2024F by 1%-2%.

“We note that there is greater earnings accretion for Magnum as it is a pure-play NFO while Sports Toto has other segments such as its UK motor dealership,” reckoned the research house.

More broadly, RHB Research stayed “overweight” on the gaming sector as it expects both casinos and NFOs to benefit from the re-opening of borders, return of foreign workers, and continued economic recovery.

Its top pick for the casinos is Genting Bhd for its attractive 6.4 times enterprise value/ earnings before interest, taxes, depreciation, and amortisation (EV/EBITDA) valuation versus regional peers’ 11 times.

“The continued economic recovery, resumption of tourism activity, and sustained high commodity prices should benefit all of Genting’s key segments,” projected the research house.

“Among NFOs, we prefer Sports Toto – apart from its continued ticket sales recovery, we also like the growth exposure from its other segments such as its UK motor dealership and hotel & gaming businesses in Berjaya Philippines.” – June 1, 2022

https://focusmalaysia.my/more-magnum-sports-toto-special-draw-to-shore-up-government-coffers/