Investment house Maybank IB has upgraded Sports Toto to HOLD with a higher TP of MYR1.52 (+46%) in view of the status quo prevailed in the weekend’s 6 state elections.
With a 7% upside potential, Maybank IB upgrades SPTOTO to HOLD from SELL. Unlike Magnum (MAG MK, BUY, CP: MYR1.17, TP: MYR1.25), SPTOTO is a HOLD as it notes that its share price has been more resilient of late than MAG’s due to share buy-backs.
Status quo in Penang, Selangor and Negeri Sembilan Last weekend’s state elections of Kedah, Kelantan, Terengganu, Penang, Selangor and Negeri Sembilan saw the Unity Government returned to power in Penang, Selangor, and Negeri Sembilan albeit with reduced majorities. Recall that the house had feared that NFO outlets in that 3 states may have to shutter if their governments change. NFO outlets in these 3 states account for 22%/8%/5% of SPTOTO’s total NFO outlets.
Raise long term EPS and DPS estimates by 9% Recall that 3QFY6/23 gross NFO sales/draw/outlet came in at 88% of
3QFY20 (pre-pandemic) levels or 8ppts more than we had expected despite the shuttering of 20 NFO outlets in Kedah from 1 Jan 2023. Maybank IB raises its gross NFO sales/ draw/outlet forecast to 85% from 80% from 3QFY23. The net impact is higher FY23E/FY24E/FY25E EPS by 5%/9%/9% and FY24E/FY25E DPS by 9%/9%. Note that it had cut FY23E DPS by 17% as SPTOTO will not ‘make up’ for the low DPS in the first 3 quarters of FY23. Lift DCF-TP to MYR1.52 from MYR1.04
Considering what is arguably the greatest existential threat to NFOs in decades having passed, the house thinks it is fit to reassign the previous Beta of 0.8x (from 1.1x) to derive a WACC of 9.2% (Rf: 4.2%, Rm-Rf: 6.3%) (11.1% previously). Coupled with rolling forward our valuation base year to endFY24E from FY23E, net impact is a higher DCF-TP of MYR1.52.
