The group attributed this disappointment to bad luck as its high prize payout ratio had surged sharply to 72%, which was higher than usual, according to Kenanga Investment Bank Bhd analyst Teh Kian Yeong.
Sports Toto’s abnormally high prize payout ratio was due to its “Supreme 6/58 first prize” striking twice in 3Q FY2023. Historically, the prize was struck once every three to four quarters.
The atypical scenario pushed the company’s prize payout ratio in Q3 FY2023 to be considerably higher than the group’s average of 65.4%, and Kenanga’s forecast of 63% for the year.
Another factor contributing to the quarter’s lower net profit was a drop in revenue for the lottery segment due to lower number of draws.
Quarterly revenue dropped slightly by 4% to RM1.62 billion, from RM1.7 billion in the same quarter last year.
Nonetheless, the group’s cumulative nine-month period for this financial year (9M FY2023) painted a much better showing, with net profit up 38.6% to RM159 million from RM115 million in 9M FY2022.
RHB Investment Bank analysts Jim Lim and Lee Meng Horng noted that the results came in below expectations, with 9M FY2023 profit making up only 65% of consensus estimates for the full year.
“We highlight that its (the group’s) Toto segment fell short of our expectations, while (the) HR Owen (segment) outperformed,” they said.
HR Owen is the group’s UK-based automobile segment and is primarily involved in the sale of luxury cars. It is a major retailer of Rolls-Royce, Bentley, Ferrari, Aston Martin, Maserati, Lamborghini and Bugatti brands.
Sports Toto announced a third interim dividend of 2 sen per share, with an entitlement date of June 30 and a payment date of July 21.
Uncertain NFO fate
The fate of Sports Toto’s number forecasting outlets (NFOs) remains up in the air in Selangor, Penang and Negeri Sembilan.
“In Kedah, Sports Toto is waiting to see if the political tide changes in the next state elections in the second or third quarter of 2023,” said both analysts.
The board noted that the industry “continues to be vigilant and (will) navigate carefully through changes in local government policies”.
PublicInvest analyst Eltricia Foong noted that the overall sentiment for NFOs has been adversely affected by policy changes since the 15th general election.
“A change in the political landscape of (the) states of Selangor, Penang or Negeri Sembilan (could) affect the operation of NFOs,” she said.
A possible outcome, she projected, is the closure of outlets or reduction in the number of draws.
Sports Toto’s management remains cautiously optimistic that the NFO business will continue to improve, supported by consumer spending and a rebound in tourist activities.
Nonetheless, research houses have opted for a more conservative outlook.
“We maintain a ‘neutral’ call as the stock price has priced in the near-term negatives,” said RHB analysts Lim and Lee.
They maintained their earnings forecasts for the year, adding that higher margins from the HR Owen segment will negate the impact of Toto segment’s lower financial performance.
At noon break, Sports Toto’s share price had fallen 2.29% or 3 sen to RM1.28, giving it a market capitalisation of RM1.73 billion.