Investors could remain on the edge over the six state elections, where three states have about one-third of the the total NFO outlets.
PETALING JAYA: The earnings of number forecast operators (NFOs) and share prices will likely depend on the outcome of the upcoming state elections.
Investors would remain on the edge over the six state elections, where three states have about one-third of the the total NFO outlets.
A total of 40 seats would be up for grabs in the coming elections, likely to be held in July.
Selangor, Kelantan, Terengganu, Kedah, Negri Sembilan and Penang’s state assemblies would need to be dissolved by mid-year, paving the way for the state polls.
RHB Research said ticket sales and dividend recovery had been priced in by the market but the gaming sector lacked rerating catalysts to bring earnings and valuations to new heights. Despite the headwinds, the NFOs are offering dividend yields of 5% to 7%, It added.
“Given Kedah’s ban on NFO outlets and Perlis deliberating to follow suit, we highlight that any changes to the political landscape in Selangor, Penang and Negri Sembilan present additional risks to the NFOs.
“The states make up 35% and 33% of Sports Toto Bhd
’s and Magnum Bhd’s total current outlets and ticket sales (sales and outlet vary minimally between the states).
“In the worst-case scenario, the state polls have an unfavourable outcome, and about a third of Sports Toto and Magnum’s total current outlets may be closed.
“This will be very negative for share prices, but we think the mass closure of outlets is highly unlikely, given the importance of NFOs in tax contribution.
“In the best case scenario, the political landscape will remain status quo, and fears over unfavourable policies recede,” the research house said.
Despite ticket sales inching closer to pre-Covid-pandemic levels, Sports Toto and Magnum’s share prices have been trending down.
“We suspect this is because recovery has been priced in, and regulatory uncertainties continue to outweigh any further incremental ticket sales recovery,” the research house said.
RHB Research is “downgrading” the sector to “neutral” but supporting the 5% to 7% yields.
Key downside risks include unfavourable shifts in the political landscape and changes to government policies, and fluctuations in the “luck” factor, it added.
