KUALA LUMPUR: Hong Leong Investment Bank Bhd believes that Sports Toto Bhd's number forecast operator (NFO) segment revenue will continue to recover to pre-pandemic levels, going into the financial year 2025 (FY25).
HLIB said the FY24 NFO segmental revenue accounted for 90-95 per cent of pre-pandemic figures.
"Nevertheless, we forecast the NFO's earnings before interest and taxes (EBIT) to decrease about four per cent year-on-year (YoY) after considering the normalisation of the prize payout ratio (luck factor) in FY25 forecast," it said in a note today.
HLIB Research said Sports Toto will re-open the 19 outlets in Kedah pending the disposal of the "stay order" and "appeal" (filed by Kedah state legal advisor) from relevant authorities, as well as the approval from the Ministry of Finance (MoF).
This is following the recent Alor Setar High Court's ruling that the Kedah government's decision to cease issuing and renewing business licences for gaming operators was unconstitutional.
"For Perlis, Sports Toto is still pending a hearing date at the Federal Appeal Court to resolve NFO outlet closedowns from July 2023 onwards for the same regulatory reasons.
"Nevertheless, we are relatively neutral regarding the impact of the potential re-openings on our earnings forecasts, as both Kedah and Perlis accounted for approximately 25 outlets or less than five per cent of existing outlets," it noted.
For the group's luxury car unit, HR Owen plc, HLIB said car sales volume will be boosted by deliveries of various newly-launched iconic models such as the Lamborghini Revuelto, Rolls Royce Spectre, Ferrari Purosangue (SUV) and Daytona SP.
However, the firm pencilled in a flattish YoY revenue growth after taking recent ringgit strength against the British sterling pound into consideration.
Overall, HLIB upgraded Sports Toto's rating to "Buy" from "Hold", with a higher target price of RM1.85 from RM1.60 previously.
This is given the better-than-expected results and decent FY25 forecast dividend yield of 5.3 per cent.
The firm also raised its FY25 and FY26 earnings forecasts by five per cent and six per cent for the group to primarily reflect less conservative (lower) prize payout ratio assumptions.