KUALA LUMPUR: There may be minimal impact to Sports Toto Bhd's earnings despite the recent announcement that special draws for numbers forecast operators (NFO) will be reduced in 2023.
At a press conference following his Cabinet meeting yesterday, Prime Minister Datuk Seri Anwar Ibrahim said the number of special draws for NFOs will be reduced to eight from the present allocation of 22.
There was a negative investor reaction to the announcement leading to a sell-off in NFO shares on Monday. Sport Toto's stock fell seven sen or 4.2% to RM1.60 a share while Magnum Bhd dropped seven sen or 5.15% to RM1.29 a share.
However, Hong Leong Investment Bank (HLIB) research expects the earnings impact to be insignificant given the lower sales recorded for special draws compared with normal draws.
"Punters typically prefer to play on routine normal draws which are held on Wed, Sat and Sun, while special draws are held on selected Tuesdays as prescribed by the Ministry of Finance," said the research house.,
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In addition, HLIB said a portion of special draw sales cannibalises the sales from normal draws.
Given that special draws have a higher tax than normal draws, this results in a net negative impact to earnings for this portion of cannibalised sales, it added.
HLIB said it was maintaining its forecasts, "buy" call and target price of RM2.27 on Sports Toto.
"As we expect the earnings impact to be minimal, we believe the current kneejerk reaction and weakness in share price presents a good opportunity to accumulate.
"At RM1.60 closing price, our projected yield for FY23 is generous at 8.8%," it added.
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