KUALA LUMPUR: Sports Toto Bhd is expected to register a slight improvement in its lotto operations for the upcoming second quarter (Q2) financial year 2023, said Affin Hwang Capital.
This is on the back of a higher number of draw days quarter-on-quarter (qoq) (i.e 46 draws from 42 draws in Q1 FY23) despite sales per draw likely to be flattish and lag 15 per cent below pre-pandemic levels.
On a full-year basis, Affin Hwang expects a growth of 26 per cent year-on-year (yoy) versus consensus of 41 on the back of a higher number of draw days.
"We are only expecting Sports Toto's sales per draw to gradually recover over time to pre-pandemic levels up to late 2024, which is likely the result of our FY23-25 earnings forecasts being 10 per cent below consensus," it said.
Affin Hwang said investor sentiment was likely to remain hampered by recent implementations along with the uncertainty of policies needed to rerate the sector.
Recent implementations effective from 2023 that negatively impacted sentiment included reduction of special draws to eight times per year (from 22 times) and number forecast operators (NFOs) having to cease operations in Kedah.
Affin Hwang said the policies much needed to rerate the sector would likely need more time to be considered given the recent change in government, i.e. approval of mobile betting.
"We reiterate our contrarian Sell rating on Sports Toto with an unchanged target price of RM1.45.
"Despite the stock currently trading at 2SD (standard deviation) below its historical mean, we think investors should avoid the stock for the time being due to a lack of clear catalysts and uncertainty of favourable sector policies being implemented," it added.