RHB Investment Bank Bhd (RHB Research) has upgraded Sports Toto Bhd (SPTOTO) to a BUY call from Neutral, with a target price of RM1.60, implying a 14% upside and an 8% forecast dividend yield for FY2027. The research house reported the recent weakness in share price has lifted the counter’s potential upside beyond its threshold, making valuations more attractive despite no major changes to earnings forecasts or assumptions. At its current level of RM1.41, downside risk is seen as limited, underpinned by strong cash flow generation and sustainable dividends.
For FY2025, Sports Toto posted a core net profit of RM237 million, a 7.5% year-on-year increase that came in within expectations, meeting 99% of RHB’s and 96.2% of consensus full-year forecasts. The earnings growth was largely supported by stronger gaming profit before tax, which rose 13.1% on-year on a lower prize payout ratio of 58.8% compared with 60% in FY2024. This improvement was partially offset by weaker performance from UK subsidiary HR Owen, where profit before tax fell 25.2% due to elevated operating expenses tied to brand positioning efforts. A fourth interim dividend per share of 2 sen was declared, bringing the year-to-date payout to 8 sen, in line with expectations.
Looking ahead, RHB Research expects gaming sales to gain momentum in the next quarter, spurred by the RM78 million Supreme Toto 6/58 jackpot that was won on 20 August. HR Owen is also projected to see a modest sales boost from the September car plate campaign in the UK. However, distributorship margins may remain pressured by persistently high operating costs and depreciation from recent land acquisitions in the UK. These acquisitions, which will be funded internally, are intended to reduce future lease payments.
RHB is maintaining its earnings forecasts and its discounted cash flow-derived target price of RM1.60, inclusive of a 2% ESG premium. The broker highlighted that Sports Toto is currently trading at eight times price-to-earnings, around one standard deviation below its five-year mean. It believes the combination of a recovering sales outlook, defensive earnings profile, and attractive yield should support a re-rating of the stock closer to its historical average.
Nonetheless, RHB Research cautioned that downside risks remain, including unfavourable luck factors, potential government policy changes, and softer-than-expected ticket sales.
As of 10.06 am, Sports Toto’s stock price plummeted 1.42% to RM1.390.
