Tuesday, Nov 23, 2021
MARC has
affirmed its rating of AA- on Sports
Toto Malaysia Sdn Bhd’s (Sports Toto) RM800.0 million 15-year Medium-Term Notes (MTN) Programme
with a stable outlook.
The affirmed
rating is mainly driven by Sports Toto’s entrenched domestic market position as
a number forecast operator (NFO) with the largest number of outlets in the
country. We note that despite the recurrence of mandatory closures of its
outlets due to movement restrictions in the last two years, Sports Toto’s earnings
have not been significantly impacted, partly due to lower operating costs.
As at date,
all of Sports Toto’s outlets are fully operational since the easing of the pandemic
measures. While its growth prospects have improved, recovery to pre-pandemic
levels would depend on the pace of improvement in consumer sentiments. For
financial year ended June 30, 2021 (FY2021), revenue declined 8.2% y-o-y to
RM2.3 billion, although this was cushioned by the increased number of draws
conducted during the year. Coupled with lower prize payouts and lower operating
expenses, pre-tax profit rose by 5.0% y-o-y to RM271.1 million. Cash flow from
operations was strong at RM237.3 million (FY2020: RM108.6 million) with cash
position improving to RM164.4 million.
We note that
Sports Toto remains exposed to regulatory risk both at federal and state levels.
This has been evident in the recent decision by the Kedah state government not
to renew the operating permits of NFOs in the state. However, the impact on Sports
Toto’s earnings from this decision would be minimal as it has only 19 outlets
in Kedah, accounting for less than 3% of its total 676 outlets in the country. We
view the exposure to regulatory risk to be mitigated by the company’s established
operating track record and adherence to regulations including limit imposition on
the number of draws.
Total
borrowings remained flat at RM800.0 million, comprising solely the outstanding
MTNs. Its upcoming notes redemption of RM300.0 million on June 30, 2022, can be
rolled over. Under the programme amortisation schedule, the programme limit
will reduce by RM100 million only in 2029.
Contacts:
Glenn Wong Liu Yu, +603-2717 2961/ liuyu@marc.com.my;
Lim Wooi Loon, +603-2717 2943/ wooiloon@marc.com.my.