This article first appeared in The Edge Malaysia Weekly on May 30, 2022 - June 5, 2022

NUMBERS forecast operators (NFOs) Sports Toto Bhd and Magnum Bhd are expected to see ticket sales return to pre-Covid-19 pandemic levels by end-2022, with recovery seen to be faster for the former than the latter, analysts say.

“We gather that their sales [as of May] are back up to 80% to 85% of pre-Covid-19 levels, although this does fluctuate from time to time. That’s the guidance they gave,” Maybank Investment Bank (Maybank IB) Research gaming analyst Yin Shao Yang tells The Edge.

Magnum, which on May 19 released its financial results for the first quarter ended March 31, 2022 (1QFY2022), saw ticket sales hit 72% of its pre-Covid-19 level.

As for Sports Toto, which last week released its financial results for the third quarter ended March 31, 2022 (3QFY2022), the average ticket sales per draw that quarter hit 96% of the pre-pandemic level. This was largely because of the snowballing of its Supreme Toto 6/58 jackpot prize, which helped lure punters away from rivals. The prize money peaked at RM97.8 million on March 30.

“The industry as a whole is definitely on its way to recovery by year end, but [the improvement] was skewed towards Sports Toto in the January-March quarter because of that one particular game. However, since that jackpot was already struck in March, I think in the April-June results, we should see a more even distribution in terms of the market share,” says Yin.

“That being said, I think it’s a bit premature to assume that the industry will recover all the way back up to 100% of the pre-Covid level. It will come close, though,” he adds.

This is because foreign workers or hard labourers are not yet back in full force in Malaysia since having to leave the country shortly after the pandemic hit in 2020. This group is estimated to account for roughly a fifth of NFO customers in Malaysia and — because of their smaller punts — about 10% of the industry’s sales, Yin points out.

“Malaysia is still ironing out the details of how they should come in again. We will probably [have to] see them return en masse to get the industry sales back up to 100%, but I think we’re pretty close already,” he says.

Another reason sales may not get back fully to pre-Covid levels is the increasing competition NFOs face from illegal operators, which made a lot of headway during the Covid-19 lockdowns when legal betting outlets were closed.

Analysts say it is tough to estimate the size of the illegal market as there are too many small players. Market talk is that the illegal market is anywhere from one time to even two times that of the legal one. The legal NFO market was about RM9 billion, prior to Covid-19.

Meanwhile, analysts are not overly concerned about the rising cost of living having an impact on NFO sales, pointing out that these are small-ticket items. Some note that in tougher times, people get desperate and tend to bet bigger than they usually would.

“This is a very established industry and while I won’t say it’s recession-proof, it’s actually recession-resistant. Ironically, sales do pretty well during bad times,” says Maybank IB’s Yin.

Sports Toto expressed confidence about a stronger recovery trajectory in line with the resilient nature of the NFO business.

“We saw a stronger recovery in 3QFY2022, in line with the festive period in February and higher accumulated jackpot prizes. As Malaysia phased into endemicity, the removal of standard operating procedures allowed more freedom of movement and a sense of normalcy as people returned to their offices and workplaces,” the company tells The Edge via email.

Sports Toto goes on to add that its outlets experienced higher customer patronage, more so in the southern region, with the Singapore-Malaysia border now fully reopened.

“We remain confident of a stronger recovery trajectory in line with the resilient nature of the NFO business,” it says.

Sports Toto’s 3QFY2022 net profit beat analysts’ expectations, jumping 49% year on year (y-o-y) to RM79.6 million, mainly because of the stronger-than-expected ticket sales and better contribution from its luxury car distributor, H.R.Owen in the UK. This brought cumulative earnings for the nine months to RM115.2 million, which made up 78% of consensus estimates for the full year.

It declared a dividend per share (DPS) of two sen that quarter, bringing the total so far to four sen, compared with eight sen a year earlier.

“While we expect a weaker 4Q2022 ticket sales after a strong 3Q2022, we believe Sports Toto’s ticket sales recovery is on track to full recovery in 1HFY2023 and in fact, its recovery is better than its peer Magnum,” says Kenanga Research analyst Teh Kian Yeong in a May 24 report.

“We continue to like this high-yielding stock which is supported by the recovery of ticket sales, making it a good avenue for income seekers,” he adds.

As for Magnum, its 1QFY2022 net profit rose by 1.2 times y-o-y to RM16.7 million, which was below analysts’ expectations. It announced a DPS of one sen compared with no dividend in the year-ago period.

“1QFY2022 results missed on slightly weak NFO sales, investment loss and taxes. We now expect NFO sales to sequentially recover in 2QFY2022-3QFY2022, with a full recovery to pre-Covid-19 levels in 4QFY2022 (versus expectations of 3QFY2022 previously),” says CGS-CIMB Research in a May 20 report.

Bloomberg data shows that nine analysts have a “buy” call on Sports Toto, while one has a “hold” and another, a “sell” call, with the average 12-month target price at RM2.28. The stock has gained 0.5% this year to close at RM1.91 last Friday, giving the company a market capitalisation of RM2.58 billion.

For Magnum, there were three “buy” and three “hold” calls, with the average target price at RM2.16. The stock has shed 7.4% this year to RM1.76, giving the firm a market cap of RM2.53 billion.

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