KUALA LUMPUR: Maybank Investment Bank Bhd (Maybank IB) warned that its long-term earnings predictions for Sports Toto Bhd might be reduced by 52 per cent if the governments of Selangor, Penang, and Negri Sembilan change in the next state elections.
The investment bank said in a note today that 35 per cent of Sports Toto's total outlets are numbers forecast operator (NFO) outlets located in Selangor, Penang, and Negri Sembilan.
"Relative to Magnum Bhd, Sports Toto has more NFO outlets in Selangor at 22 per cent compared to Magnum at 18 per cent.
"If just the Selangor state government change, our long-term earnings estimates could be cut by a still deep 33 per cent," it noted.
Maybank IB also said due to minor housekeeping, it has trimmed Sports Toto's financial year 2023 estimates (FY23E), FY24E, and FY25E core earnings by two per cent, four per cent, and two per cent respectively.
The firm's forecast that Sports Toto's gross NFO sales, draw, and outlet will plateau at 80 per cent of pre-Covid levels going forward is unchanged.
"NFO outlets in Selangor, Penang, and Negri Sembilan account for 22 per cent, eight per cent, five per cent of its total NFO outlets.
"Compared to Magnum, (NFO outlets in Selangor account for 18 per cent of total NFO outlets), Sports Toto will be especially hard hit should the Selangor state government change," it said.
Overall, Maybank IB has raised Sports Toto's weighted average cost of capital to 11.1 per cent from 9.2 per cent.
It has also downgraded Sports Toto's rating to sell from hold while trimming its discounted cash flow target price by 26 per cent to RM1.04.