[MARC] MARC Ratings affirms AA- rating on STM Lottery’s MTN Programme

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.

The rating affirmation considers STM Lottery’s key position as the leading licensed number forecast operator in the country, its long operating track record, as well as strong cash flow generation relative to its debt obligations. The company’s entrenched market presence is supported by it having the highest number of outlets in Malaysia. The rating remains mainly moderated by licence renewal and regulatory risks.

STM Lottery’s exposure to regulatory risk has come to the fore with the recent ban on gaming activities by the Kedah and Perlis state governments in January 2023 and March 2024. The closure of 24 outlets in these states has had minimal impact on STM Lottery’s earnings, given sales from these states had historically contributed insignificantly to total revenue.

For financial year ended June 30, 2024 (FY2024), STM Lottery recorded higher revenue of RM3.0 billion, a 4.3% increase y-o-y, despite having conducted a lower number of draws at 167 (FY2023: RM2.8 billion; 175 draws). STM Lottery generated 9.3% higher sales per draw y-o-y as the gaming business continues to recover. The revenue growth and lower prize payout have offset the higher operating cost, leading to a 29.6% increase in pre-tax profit to RM384.5 million. STM Lottery has absorbed the 2.0% upward revision in sales and services tax (SST) effective March 2024 to maintain a low entry cost for punters.

Operating cash flow rose to RM311.2 million (FY2023: RM257.7 million) and is considered strong, relative to STM Lottery’s financial obligations. Total borrowings of RM881.8 million comprise mainly outstanding notes under the MTN programme amounting to RM800 million. The MTN’s back-ended amortisation structure allows STM Lottery a sufficient timeframe to build up its cash balance to meet later financial obligations; the MTN limit reduction will commence in 2029 (RM100.0 million) and continue thereafter in 2030 (RM100.0 million), 2031 (RM200.0 million) and 2032 (RM400.0 million). As at end-FY2024, loans due from STM Lottery’s immediate parent, Sports Toto Berhad, stood at RM1.1 billion and remain the largest portion (69.8%) of its total assets.

Vanessa Leong, +603-2717 2931/ xinyue@marc.com.my
Cyndy Goh, +603-2717 2941/ cyndy@marc.com.my
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my