KUALA LUMPUR: The cut in special draws will pose minimal impact on number forecast operators (NFOs) while the government may lose substantial income from extra tax imposed on such draws.
The government on Monday decided to reduce the number of special draws by NFOs to eight days from 22 days, which were introduced by the previous administration.
Prime Minister Datuk Seri Anwar Ibrahim said the move was to ensure the government operate transparently.
Two listed NFOs namely Sports Toto Bhd and Magnum Bhd saw their share prices dipped on Monday after the announcement.
Sports Toto closed seven sen to a one-year low of RM1.60 with 2.95 million shares traded, while Magnum lost seven sen to a one-year low of RM1.29, with 6.2 million shares traded.
Both companies, however, recouped some losses in morning trade on Tuesday.
At lunch break, Sports Toto closed two sen or 1.25 per cent higher at 1.62, while Magnum settled at RM1.30, which was one sen or 0.78 per cent higher.
At Tuesday's closing bell, Sports Toto closed two sen or 1.25 per cent higher at RM1.62 bringing its market capitalisation to RM2.19 billion while Magnum closed two sen or 1.55 per cent higher at RM1.31 with a market value of RM1.88 billion.
RHB Research analysts Jim Lim and Lee Meng Horng said special draws tended to fetch lower margins compared to normal draws.
NFOs had to pay an additional 10 per cent as a special contribution to the government on all special draw gross ticket sales, they added. This was done after deducting the eight per cent gaming tax.
Historically, previous administrations had turned to special draws to shore up their coffers, Lim and Lee said.
The special draws first started in 1999 under the Barisan Nasional administration, mainly used to help victims of Nipah virus which stemmed from the boom in pig-farming activities back then.
The Pakatan Harapan government, which took office in 2018, lowered the number of days to eight following concerns on gambling addiction.
Perikatan Nasional administration then reinstated the number of the special lucky draws back to 22.
RHB Research pared down Sports Toto Bhd's financial year 2023 (FY23)-FY25 earnings by three per cent each year to reflect the assumption of the lower number of special draw days from 2023.
"We also highlight that, despite the increase in the number of special draw days in end-May, there was no significant improvement in Sports Toto's first quarter (Q1) ended Sept 30, 2022 (FY23) earnings."
The firm made no changes to its "Buy" rating, premised on its handsome seven per cent dividend yield.
"While we recognise that regulatory uncertainty and risks remain, we do not rule out the possibility of favourable policies in the future, i.e. the potential ramp-up in enforcement efforts against illegal NFOs," Lim and Lee said.
Public Investment Bank Bhd (PublicInvest) gave an "Overweight" call for the gaming industry and maintained "Outperform" for Sports Toto with a target price of RM2.20 despite the announcement.
"In terms of earnings impact on Sports Toto, it is expected to be minimal as this special draw reduction only lowers our assumption of total draws by about three per cent to 164 draws.
"Although this could still affect sentiment on NFO stocks, we maintain our 'Outperform' call on Sports Toto given an improving earnings outlook and attractive dividend yield," PublicInvest said.