Minimal impact seen from lower special draws for NFOs

PETALING JAYA: The impact of lower special draws awarded to numbers forecast operators (NFOs) including Berjaya Sports Toto Bhd and Magnum Bhd is expected to be minimal, said Maybank IB Research.

“We estimate that every one less special draw will trim our estimates on Berjaya Sports’ and Magnum’s earnings per share (EPS) by only 0.3%,” it said in a report.

On Tuesday, Finance Minister Lim Guan Eng stated in Parliament that the government planned to reduce the number of special draws awarded to NFOs from 2019.

The Finance Minister did not state how may special draws would be awarded in 2019 but stated that an announcement would be made during the tabling of Budget 2019 on Nov 2 this year.

Maybank IB said sales garnered during special draws are typically 10%-15% less than normal draws due to their proximity to Wednesday draws.

“We estimate that the net profit margin on special draws is less than 5%. Thus, we do not expect a reduction in the number of special draws to significantly impact NFO earnings,” it said.

Meanwhile, on the normal draws, it said the net profit is about 10%.

Maybank IB pointed out that if both companies were not awarded special draws from 2019 onwards, it estimated that its forecast for Berjaya Sports would be trimmed by 7% per annum and the target price would be cut by 6% to RM2.50.

As for Magnum, the research house said EPS estimates would be trimmed by 8% per year and the target price would be cut by 9% to RM2.05.

Yesterday, shares in both Berjaya Sports and Magnum closed one sen lower to RM2.28 and RM2.09, respectively.

“In fact, we gather that the negative impact on Berjaya Sports and Magnum may eventually not be as pronounced, as punters will likely bet more on Wednesday draws.

“Thus, we are not overly concerned and retain our ‘neutral’ view on the NFO industry and our ‘hold’ calls on the two companies,” Maybank IB said.

Special draws are held over and above the normal draws on every Sunday, Wednesday and Saturday (156-157 normal draws per annum). They were introduced in 1998 to raise funds during the Nipah virus outbreak and are typically held on Tuesdays.