HLIB Research said that going into 2Q25, Sports Toto’s NFO segment revenue will continue to recover to pre-lockdown levels.
PETALING JAYA: Sports Toto Bhd
’s earnings growth in the coming quarters is expected to be sustained by its number forecast operation (NFO).
Analysts are optimistic that the NFO segment, which accounts for the bulk of the group’s revenue, will continue to recover to pre-lockdown levels, driven by steady economic conditions and the “luck factor”.
Sports Toto reported a 31.3% decline in net profit to RM41.3mil for its first quarter ended Sept 30, 2024 of financial year 2025 (1Q25) from RM60.2mil in 1Q24, while revenue fell to RM1.44bil against RM1.59bil a year prior.
The results largely missed market expectations, primarily due to a surprise loss at Sports Toto’s luxury car distribution unit, HR Owen, on lower revenue and challenging operating conditions.
Maybank Investment Bank (Maybank IB) Research, which maintained its “buy” call on Sports Toto, with an unchanged target price of RM1.65, said history has shown that HR Owen’s earnings can turn around relatively quickly.
More importantly, the brokerage noted that the NFO segment, which traditionally contributes 80% to 90% to the group earnings and 100% to dividends, remains relatively stable.
It said that while NFO sales and draws eased 5% year-on-year (y-o-y) and 2% quarter-on-quarter due to lower accumulated jackpot prizes, NFO sales and draws still came in at a respectable 90% of 2019 levels.
“As jackpots re-accumulate, NFO sales and draws ought to recover to our forecasted 95% of 2019 levels in the long term,” it said.
Maybank IB Research noted that this is not the first time HR Owen incurred losses. The unit last did so in 2Q24 at RM6.9mil but still ended with earnings before interest and tax (Ebit) of RM39.1mil for the financial year ended June 30, 2024 (FY24), as car sales recovered throughout the year.
“In summary, we expect HR Owen earnings to recover going forward. Thus, we are not inclined to cut our earnings and dividends estimates just yet, especially the latter, as Sports Toto sources all its dividends from STM Lottery Sdn Bhd and not HR Owen,” it explained.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said going into 2Q25, Sports Toto’s NFO segment revenue will continue to recover to pre-lockdown levels.
The brokerage highlighted that Sports Toto’s Supreme 6/58 jackpot prize was creeping up again and exceeded the RM40mil threshold in early-November.
“As the jackpot snowballs to a bigger amount, each draw will attract a higher amount of sales compared to the previous draw. Nevertheless, we forecast the NFO’s Ebit to decrease 6% y-o-y after considering the normalisation of the prize payout ratio (luck factor) in the financial year ending FY25,” HLIB Research said.
The brokerage downgraded its recommendation on Sports Toto to “hold”, with a lower target price of RM1.60, compared with RM1.85 previously.
“For HR Owen, car sales volume will be boosted by deliveries of various newly launched iconic models (such as Lamborghini Revuelto, Rolls Royce Spectre, Ferrari Purosangue and Daytona SP3),” it said. However, we pencil in a flattish y-o-y revenue growth after taking ringgit strength against the British pound into consideration, as well as the 50% deterioration in Ebit to account for 1Q25 losses,” it added.
HLIB Research has lowered its earnings forecast for Sports Toto by 18% for FY25 and 10% for FY26.
