SPTOTO: In-Line Earnings on Gaming Strength, Future Outlook Maintained

A recent investment bank research report indicates that the company’s full-year FY25 core net profit of MYR237 million, marking a 7.5% year-on-year increase, largely met both the investment bank’s and consensus expectations. This performance was primarily underpinned by robust gaming segment contributions, which offset weaker results from its UK-based HR Owen subsidiary.

Performance Review

The company’s FY25 core net profit came in at 99% of the investment bank’s forecast and 96.2% of the consensus. Total revenue for FY25 saw a modest rise of 2.4% to MYR6.5 billion. The stronger gaming segment’s profit before tax (PBT) grew by 13.1% year-on-year, mainly due to a lower prize payout ratio of 58.8%, a reduction from 60% in FY24. This factor, combined with improved operating leverage, also led to an expansion in the EBIT margin to 6.7%.

However, the UK subsidiary HR Owen faced challenges, with its PBT declining by 25.2% year-on-year. This was attributed to elevated operating expenses stemming from brand positioning initiatives. The fourth quarter of FY25 (4QFY25) saw a sequential revenue decline of 14.5% quarter-on-quarter to MYR1.6 billion, influenced by fewer draws and softer new car volumes for HR Owen. Consequently, core profit in 4QFY25 plunged by 61.8% quarter-on-quarter to MYR40.3 million, further impacted by a higher prize payout ratio of 61.2% in the quarter compared to 56.7% in 3QFY25, and the absence of the UK’s peak car plate month which occurred in the preceding quarter.

Future Outlook

Looking ahead to the first quarter of FY26, gaming sales are anticipated to improve, buoyed by the recent MYR78 million accumulated Supreme Toto 6/58 pool. The HR Owen segment is also expected to see a modest uplift from the upcoming September car plate campaign in the UK. Nevertheless, distributorship margins for HR Owen are projected to remain under pressure due to persistently high operating costs and depreciation associated with recent land acquisitions in the UK. These acquisitions, funded by internal funds, are, however, expected to reduce lease payments over time.

Analyst Recommendation

The investment bank, RHB, maintained its “Neutral” rating on the stock, reflecting the in-line results and balanced outlook. The target price has been revised upwards to MYR1.60 from MYR1.47, incorporating a 2% ESG premium and rolling forward the valuation base year to FY26F. This new target price implies a 10.3x FY27F P/E, which is approximately one standard deviation above its 5-year mean. Key downside risks identified include an unfavorable luck factor, changes in government policies, and softer-than-expected ticket sales.