SPTOTO: Gaming Group Reports Earnings Miss Amidst UK Dealership Losses, Outlook Challenging

Performance Review

A prominent gaming and automotive group has reported first-half fiscal year 2026 (1HFY26) core earnings significantly below market expectations, primarily dragged down by wider losses in its UK car dealership segment. This performance prompted a leading investment bank to downgrade its rating on the company’s shares to Neutral from Buy, while also revising down its target price.

For 1HFY26, the group’s core earnings softened to MYR67.2 million, marking a substantial 26.1% year-on-year decline. This figure notably missed both the investment bank’s and consensus full-year forecasts, representing only 37.3% and 36.6% respectively. Quarterly performance in 2QFY26 saw revenue reach MYR1.5 billion, a slight 1.4% quarter-on-quarter decrease but flat year-on-year. Cumulatively, 1HFY26 revenue rose 1.6% year-on-year to MYR3 billion, largely attributed to an additional draw day. Despite the earnings miss, the group declared a second interim dividend per share of MYR0.03, aligning with expectations, with overall dividend visibility remaining robust, underpinned by its resilient gaming operations.

Factors Impacting Performance

The shortfall in earnings was mainly due to increased losses from the UK car dealership business, H.R. Owen, which faced higher employment costs stemming from newly implemented UK labour regulations. Additionally, an elevated prize payout ratio of 63.4% in 1QFY26 also weighed on performance. The gaming segment, while providing resilience, continues to contend with challenges from rampant illegal number forecast operators (NFOs) and difficulties in engaging younger generations through digital platforms.

Future Outlook and Valuation

Looking ahead, the investment bank anticipates continued subdued margins for the car dealership business due to elevated operating costs and increased depreciation from recent land acquisitions in the UK. The NFO segment is also expected to face ongoing struggles. Consequently, the bank has revised its earnings forecasts for FY26-28F downwards by 8.1%, 1.5%, and 2.8% respectively. Reflecting these adjustments and incorporating a 2% ESG premium, the target price has been lowered to MYR1.48 from MYR1.55. Despite the immediate challenges and the absence of clear near-term catalysts, the stock is still considered a defensive yield play. Key risks include adverse luck factors, government policy changes, and softer-than-expected ticket sales.