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More paper cut than deep gash

Maintain BUY call with lower TP of MYR2.29 (-5%)

The Kedah state ban on NFO outlets will have a minimal negative impact on earnings (-4%). While Cukai Makmur will also have a negative impact on earnings (-4%), it will only be for 1 year. We trim our FY22E EPS by 8% and FY23E/FY24E EPS by 4%. Consequently, we trim our DCF-based TP to MYR2.29 from MYR2.41 but maintain our BUY call. We advise investors to BUY BST shares should there be a ‘knee jerk reaction’ to its share price today.

Only 3% of NFO outlets affected by Kedah state ban

Yesterday, the Kedah state government announced that it will not renew the licenses of NFO outlets for CY22E. Our analysis reveals that only 20 or 3% of BST’s NFO outlets are located in Kedah. We beg to differ with the Kedah Chief Minister, Muhammad Sanusi Md Nor, who implied that BST’s NFO outlets in Penang may benefit from this development. We gather that punters in Kedah will likely bet with illegal NFOs instead due to their proximity, depriving the federal government of tax revenues.

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Cukai Makmur will weigh as well

Under Budget 2022, the Government of Malaysia proposed Cukai Makmur (Prosperity Tax) whereby chargeable income for the first MYR100m will be subject to the existing corporate tax rate of 24% and anything in excess of that will be taxed at 33% for YA2022. While corporate income tax is chargeable at the company level (not at group level) for income derived and remitted into Malaysia, we gather that almost all of BST’s profits are derived from one company, Sports Toto Malaysia Sdn. Bhd.

Long term prospects still stable, in our view

Reflecting the above, we trim our FY22E EPS by 8% and FY23E/FY24E EPS estimate by 4%. Our FY22E EPS trim is wider than that of FY23E/FY23E due to Cukai Makmur, which will only be imposed for 1 year. Our FY23E/FY24E EPS trim reflects only the closure of BST’s NFO outlets in Kedah. Consequently, our DCF-based TP is trimmed by 5% to MYR2.29. Maintain our BUY call on BST due to its relatively stable long term prospects.