Sports Toto’s big gamble pays off

Sports Toto Bhd has been on a winning streak. Over the last 5 days, the number forecast operator rose 5.8% to close at RM1.64 on June 20. In the past year, it gained 18%, touching a high of RM1.68 versus a low of RM1.21.

A new short-term uptrend may be underway with follow-through buying lifting prices towards the resistance at RM1.68 and RM1.83 next. Investors like Sports Toto for its dividend yield, which is still relatively high at 5.4%.

It used to offer annual dividend yields of 7.1%, which was more than the yield on 10-year Malaysian Government Securities of 3.9%. The last time there was a spike in Sports Toto share price was in May after it reported quarterly results that came in stronger than expected. The counter rose to its highest in 18 months at that time to touch a high of RM1.67.

Core net profit for the nine months ended March 31, 2024 (9MFY2024) accounted for more than 80% of the consensus full-year forecast. However, many analysts were doubtful of further upside to Sports Toto's share price, and flagged that earnings growth may ease ahead.

Sports Toto’s lottery segment benefited from seasonally stronger sales, but this is likely to normalise in the fourth quarter ending June 30, 2024 (4QFY2024). Sales volume for the car dealership business may also normalise in 4QFY2024, adding that the segment could continue to be affected by high financing costs in the UK. It also had to deal with higher depreciation and operating costs.

Shares in Sports Toto have risen amid a strong recovery of the lottery segment, while its luxury car retailing unit HR Owen plc benefited from the number plate change month. This was despite tough economic conditions in the UK.

According to analysts, Sports Toto’s lottery business had largely recovered, with the gap between pre- and post-pandemic sales per draw narrowing to about 5%. The company recently reported a net profit of RM68.45 million in 3QFY2024 compared with RM23.22 million a year earlier.

Revenue inched up 2.4% to RM1.69 billion from RM1.66 billion, according to a bourse filing. For 9MFY2024, net profit dropped 4.2% to RM152.83 million from RM159.58 million. The company's nine-month top line, however, rose 3.9% to RM4.66 billion from RM4.48 billion previously.

Some of these numbers are quite encouraging given tough operating environment. But just like most companies, costs are escalating and those which can weather this trying times will come out stronger.