MARC Ratings has affirmed its rating of AA- on STM Lottery Sdn Bhd’s RM800.0 million 15-year Medium-Term Notes (MTN) Programme with a stable outlook. Proceeds from issuances under the programme had been used to refinance maturing notes under the previous rated programme.

The rating affirmation reflects STM Lottery’s position as the largest licensed number forecast operator (NFO) in Malaysia, supported by its long operating track record and strong cash flow generation relative to its debt obligations. The company’s entrenched market presence is underpinned by its extensive nationwide network with the largest number of outlets among domestic NFOs. The rating remains moderated by risks associated with annual licence renewal and other potential regulatory changes.

STM Lottery’s exposure to regulatory risk has been highlighted by the closure of its operations in Kedah and Perlis following the states’ decision to ban all gaming operations. Although the closures have had limited financial impact to the company’s performance due to the relatively lower revenue contributions, the company has filed separate judicial review applications to challenge the non-renewal of its business operating licences in both states.

For the financial year ended 30 June 2025 (FY2025), STM Lottery recorded 5.4% y-o-y revenue growth to RM3.1 billion (FY2024: RM3.0 billion) despite a marginally lower number of draws at 164. Translating into a 7.3% increase in sales per draw, the revenue growth represents a continued recovery in demand. The higher revenue offset the rise in operating costs, leading to a 13.3% increase in pre-tax profit to RM435.6 million. MARC Ratings notes that STM Lottery’s outlets are largely operated by independent agents, and as such, the impact of higher minimum wage requirements on the company’s cost structure is minimal.

STM Lottery’s cash flow generation remained strong, with cash flow from operations (CFO) increasing to RM350.7 million (FY2024: RM311.2 million), underpinned by stable earnings and the cash-based nature of its operations. CFO interest and debt coverage ratios improved to 7.5x and 0.4x. While free cash flow moderated to RM25.5 million due to higher dividend payouts and capital expenditure, cash balances rose to RM374.8 million, supported by RM80.4 million in loan repayments from the holding company. As at end-FY2025, intercompany loans due from its immediate parent, Sports Toto Berhad, stood at RM1.1 billion, accounting for 66.1% of total assets, a structural feature of STM Lottery’s balance sheet.