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The upcoming Selangor, Penang and Negeri Sembilan state elections pose a huge risk for the gaming sector, in particular for NFOs like Sports Toto and Magnum.
KUCHING (May 16): The upcoming Selangor, Penang and Negeri Sembilan state elections pose a huge risk for the gaming sector, in particular for number forecast operators (NFOs) like Sports Toto Bhd (Sports Toto) and Magnum Bhd (Magnum).
This comes amidst talks of Selangor, Penang, Negeri Sembilan, Kedah, Kelantan and Terengganu widely believed to dissolve their state assemblies in slightly more than a month from now, paving the way for state elections in the third quarter of 2023 (3Q23).
Recall that NFO outlets in Kelantan and Terengganu were shut in the 1990s following changes in state governments. All 45 NFO outlets in Kedah were recently shut on January 1, 2023 following a change in state government on May 16, 2020.
“We flag the risk of NFO outlets in Selangor, Penang and Negeri Sembilan being shut should their state governments change at the upcoming state elections,” commented analysts with Maybank Investment Bank Bhd (Maybank IB Research).
“We estimate that about 50 per cent of earnings are at risk should these state governments change, leading to the Islamic party (green wave) playing a more prominent role in state matters.”
In a separate report, Maybank IB Research believed that Sports Toto would be the most exposed if state governments change.
“Our forecast that Sports Toto’s gross NFO sales/draw/outlet will plateau at 80 per cent of pre-Covid levels going forward is unchanged.
NFO outlets in Selangor, Penang and Negeri Sembilan account for 22, eight and five per cent respectively of Sports Toto’s total NFO outlets.
Assuming average gross NFO sales/draw/outlet are uniform throughout the country and NFO outlets are shut on January 1, 2024 should state governments change, Maybank IB Research’s long term earnings estimates for Sports Toto could be cut by 52 per cent if the Selangor, Penang and Negeri Sembilan state governments all change.
“Should just the Selangor state government change, our long term earnings estimates could be cut by a still significant 33 per cent,” it added.
Separately, the research house said Magnum might not fare a lot better than Sports Toto.
“Our forecast that Magnum’s gross NFO sales/draw/outlet will plateau at 70 per cent of pre-Covid levels going forward is unchanged,” Maybank IB Research said.
NFO outlets in Selangor, Penang and Negeri Sembilan account for 18, nine and six per cents respectively of Magnum’s total NFO outlets. Compared to Sports Toto, Magnum will be less hard hit should the Selangor state government change.
“That said, the downside risk to earnings will still be significant.
“Assuming average gross NFO sales/draw/outlet are uniform throughout the country and NFO outlets are shut on January 1, 2024 should state governments change, our long term earnings estimates for Magnum could be cut by 48 per cent if the Selangor, Penang and Negeri Sembilan state governments all change.
“Should just the Selangor state government change, our long term earnings estimates could be cut by a still significant 26 per cent.”
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