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 ending in 2032. The rating carries a stable outlook.

Sports Toto’s ability to generate healthy cash flow as a number forecast operator (NFO) in the domestic gaming sector, its lengthy track record and its entrenched market position in the oligopolistic gaming sector remain key rating drivers. The rating is mainly moderated by the periodic licensing requirement that poses a significant regulatory risk, which is mitigated by Sports Toto’s longstanding operating track record of over 50 years.

Sports Toto’s recent performance has been affected by the three-month business closure between March 18 and June 16, 2020 under the movement control order (MCO) and the subsequent restrictive measures that were implemented to combat the COVID-19 pandemic. This led to a sharp decline in revenue to RM2.5 billion for financial year ended June 30, 2020 (FY2020) compared to RM3.6 billion for the 14-month period ended June 30, 2019 (FY2019). With draws cancelled during the lockdown period, and given Sports Toto’s fixed operating expenses, operating profit margin fell to 12.2% (FY2019: 13.7%). Accordingly, cash flow from operations (CFO) decreased sharply to RM108.6 million (FY2019: RM372.2 million).

While the restrictive measures have steadily eased, recovery has only been gradual with ticket sales hovering around 15%-20% below pre-COVID-19 levels. As with other NFO players, Sports Toto also has to contend with stiff competition from alternative gaming operations which have benefitted from the migration of players to these games during the lockdown. The rating agency is of the view that Sports Toto’s performance will come under renewed pressure if another lockdown is imposed to contain the spread of COVID-19.

The aforementioned concerns are largely mitigated by Sports Toto’s strong liquidity position with a cash balance of RM118.7 million as at June 30, 2020 and the programme’s amortising structure under which the limit reduction of RM100 million commences only in 2029. In addition, the company could temper dividend payout to parent Berjaya Sports Toto Berhad (BToto) to support its liquidity position. In FY2020, dividend declared to BToto was lower at RM161.5 million (FY2019: RM259.9 million).

The stable rating outlook incorporates MARC’s expectations that Sports Toto’s credit profile would remain in line with the current rating band. Nonetheless, any changes in the domestic gaming regulations and/or an occurrence of material events that hinder ongoing operations may lead to a rating reassessment.

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