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.