Maybank IB Research downgrades NFOs to 'neutral' on lower sales growth forecast

KUALA LUMPUR (Nov 12): Maybank Investment Bank Research downgraded number forecast operators (NFOs) to "neutral" from "positive", as it cut gross NFO industry sales growth forecasts amid the Covid-19 pandemic.

The research house’s analyst Yin Shao Yang said in a note today that five months after NFO outlets reopened, he understood that gross NFO industry sales or draws have yet to recover beyond 80-85% of pre-closure levels, signalling that gross industry jackpot sales have struggled to recover to pre-closure levels.

He gathered that sales of the more popular Classic 4D game have also been similarly impacted.

On the whole, he gathered that there has been a shift from legal to illegal NFOs as punters feared catching Covid-19.

“While relatively resilient, the NFO industry is not immune to the Covid-19 pandemic,” he said.

Meanwhile, he noted that gross industry jackpot sales or draw post-reopening is about 20% lower year-on-year.

“Assuming that gross industry Classic 4D sales or draw is trending the same way, it appears that there is still a 15% to 20% gap between current and pre-closure gross NFO industry sales or draw,” he said.

Thus, he revised his 2020 gross NFO industry sales or draw growth forecast to contract by a further 15% year-on-year from 10% previously.

He also revised his 2021 gross NFO industry sales or draw growth forecast to a contraction of 5% year-on-year from a growth of 2% year-on-year.

Consequently, he cut his Magnum Bhd (MAG) earnings per share (EPS) estimates by 8-15%, dividend per share (DPS) estimates by 1 sen to 2 sen and target price (TP) by 13% to RM2.02.

He also revised down Berjaya Sports Toto (BST) EPS estimates by 10% to 17%, DPS estimates by 1 sen to 2 sen and TP by 28% to RM1.95.

“Despite our lower DPS estimates, MAG and BST still offer dividend yields of about 6% per annum from FY21 onwards. Thus, investors may want to hold on to MAG and BST for dividend yields,” he said.