Results Review

• Sports Toto’s (SPToto) 1QFY25 core profit of RM37.2mn, after stripping out forex gain, reversal of inventory write-down and impairment on receivable of total RM4.2mn, accounted for 17.5% of our full-year forecast and 16.5% of consensus estimates. However, we consider the results within expectation and look forward to stronger NFO sales during the Chinese New Year period in 2025 as well as recovery in H.R. Owen’s car sales. For this quarter, the company declared a first interim dividend of 2sen/share.

• 1QFY25 core profit declined by 39.4% YoY mainly due to lower revenue and margin contraction resulted from lesser draws and lower car sales. The decline in car sales was compounded further by weakening of Pound against Ringgit.

• NFO. 1QFY25 revenue declined by 9.5% YoY due to 2 lesser draws compared to 1QFY24. However, on the revenue per draw basis, 1QFY25 revenue remained robust at RM17mn against the norm. 1QFY25 EBIT slid 5.4% YoY, which was in line with lower revenue.

• Car franchise. H.R. Owen’s 1QFY25 revenue dropped 8.3% YoY to RM743mn and EBIT slipped to losses of RM5.0mn versus an EBIT of RM9.9mn in the same period last year. Management attributed the decline to lower sales volume from the new car sector, which was impacted by the product life cycle of car models leading to the phasing out of certain current models. Also, the car buying sentiment was affected by challenging economic conditions and uncertainty in the UK following the general election in July-24.

Impact

• We maintain our FY25-26 earnings projections and look forward to stronger quarters ahead for the NFO segment.

Outlook

• The NFO revenue per draw has been relatively stable in the range of RM16mn to RM18mn/quarter for the past 7 consecutive quarters as punters were trying luck on the burgeoning jackpot amounts. As the jackpot has ballooned to RM46mn for Supreme Toto 6/58, we look forward to a strong NFO performance in 2QFY25.

• The completion of new car showroom in Harfield Central has resulted in higher operating leverage, which could only benefit H.R. Owen if the car sales increase or vice-versa. Look forward, we expect car sales to pick up momentum from resurgent demand for electric supercars.

• Budget 2025 turned out to be a non-event as gaming tax and pool betting duty remained the same. The expansion in the scope of service tax was irrelevant to the industry as NFO operators have been paying the service tax of 8%.

Valuation

• We maintain SPToto’s DDM valuation to RM1.76/share. However, we upgrade the stock to Buy (from hold previously) following a slight correction in share price recently.

Source: TA Research - 21 Nov 2024