SPTOTO: Earnings Miss Expectations Amid High Prize Payouts, Resilient Dividend Outlook Noted

Analysts are maintaining a “BUY” recommendation for the company despite its first-quarter financial results for the 2026 fiscal year (1QFY26) falling significantly below market expectations. The quarter saw core earnings plummet to MYR22.1 million, a substantial decline of 45.2% quarter-on-quarter (QoQ) and 46.5% year-on-year (YoY), missing both the investment bank’s and consensus full-year estimates by 10.9% and 9.8% respectively.

Revenue for 1QFY26 came in at MYR1.5 billion, representing an 8.2% QoQ decrease but a 3.7% YoY increase. The sequential decline was primarily attributed to fewer draws during the quarter (40 vs 41 in 4QFY25) and a lower accumulated jackpot for the Supreme Toto 6/58 game. However, the modest YoY revenue growth was supported by stronger accumulated jackpots in the Lotto segment, indicating some resilience in demand for specific game types.

Performance Review

The primary drag on performance was an elevated prize payout ratio, which reached 63.4% – the highest level since 3QFY23’s 69.4%. This “unfavorable luck factor” significantly impacted profitability. Despite the weaker earnings, the company declared a first interim dividend per share (DPS) of 2 sen, although this was below analyst expectations. The investment bank noted that the company’s investment appeal continues to be underpinned by its resilient dividend profile, with attractive dividend yields expected to be maintained through healthy operating cash flows.

Future Outlook and Risks

Looking ahead, the company is projected to retain its dominant market position within the legalised number forecast operator (NFO) sector. However, the outlook is not without challenges. Persistent market share pressure from illegal operators remains a structural concern. Additionally, margins from the distributorship business are anticipated to remain subdued due to elevated operating costs and increased depreciation stemming from recent land acquisitions in the UK.

Consequently, analysts have trimmed their earnings forecasts for the next three years by 14.1%, 13.8%, and 13.3% to account for the unfavorable prize payout ratio observed. The target price, derived using a discounted cash flow (DCF) methodology, has been revised downward to MYR1.55 from MYR1.60, incorporating a 2% ESG premium. This new target price implies a 10.1x FY27F P/E, which is approximately one standard deviation above its 5-year mean. Key downside risks include further unfavorable luck factors, adverse government policies, and softer-than-expected ticket sales.