Bumpy road to recovery for number forecast operators — Analysts
KUCHING: RHB Investment Bank Bhd (RHB Research) remain neutral on number forecast operators (NFOs) as the recent fourth quarter of 2023 (4Q23) results season came in below expectations.
It saw that Sports Toto Bhd’s (Sports Toto) earnings fell short of expectations due to a higher-than-average prize payout resulting from a sizeable jackpot payout during the quarter, coupled with higherthan-expected operating costs from HR Owen.
Meanwhile, Magnum Bhd’s (Magnum) earnings and dividends exceeded RHB Research’s projections, due to its previous conservative forecasts.
“We believe that lottery ticket sales in the first quarter of the year (1Q24) could swing north due to positive seasonal factors, particularly driven by the Lunar New Year period,” it said yesterday.
“Beyond the immediate term, the NFOs’ management teams noted that illegal NFOs are gaining significant market share in two northern states, which are underserved, following the closure of legal NFO outlets.
“The path to sales recovery may not be straightforward due to the strong market share of illegal NFOs.
“However, we believe stricter legislation and enforcement, as well as the legalisation of online gaming could be key catalysts for the sector.”
Meanwhile, the Government’s decision to raise the service tax rate by two percentage points from six to eight per cent starting March 2024, will impact the profitability of NFOs.
To note, NFOs have been absorbing similar taxes since the introduction of the Goods and Services Tax (GST) in 2015, and the subsequent reimplementation of the Sales and Services Tax (SST) in 2018.
“This additional increase further burdens them with taxes. Meanwhile, reducing prize payouts or increasing ticket prices could lead to decreased sales and a loss of market share to illegal NFOs.
“Therefore, NFOs must absorb these additional costs without adjusting ticket prices or diminishing prize payouts. We have taken into account the higher tax rates in generating our forecasts.”