Business

Thursday December 9, 2010

Analysts see NFOs losing market share to illegals

By CECILIA KOK
cecilia_kok@thestar.com.my


PETALING JAYA: While the new prize structure for 4-Digit (4D) Big Game will improve the net profit margins of numbers-forecast operators (NFOs), it will likely cause them to lose some market share to illegal operators, analysts say.

This is because the new prize structure, which will take effect from Dec 15, will further widen the disparity between the payouts of illegal and licensed operators. As it is, illegal operators were already giving out more attractive cash prizes to winning bets.

We, therefore, foresee lower revenue growth for NFOs for the next few years as punters will inevitably start placing bets with illegal operators to go for higher prize payouts, an analyst told StarBiz.

On Monday, Berjaya Sports Toto Bhd (BToto) and Multi-Purpose Holdings Bhd (MPHB), the holding company of Magnum Corp Bhd, separately announced that they had obtained approval from the Finance Ministry (MoF) to revise the special prizes for their 4D Big Games from RM200 per RM1 bet to RM180 per RM1 with effect from Dec 15.

With that, the special prizes for the 4D Big permutation variant of Magnum's mBox Big and Btoto's 4D i-Perm Big will be revised accordingly.

Similarly, Natural Avenue Sdn Bhd, a 65%-owned subsidiary of Berjaya Assets Bhd, had also obtained MoF's approval to revise the Starter Prizes for its version of 4D Big Game, known as the 1+3D i-Cash Big, by the same quantum from the same effective date.

Taking a leaf from history, the local NFO industry, represented by BToto, Magnum and Tanjong plc, apparently contracted by an average of 2% annually from 1999 to 2003, following a reduction in their prize payouts for 4D Big and 4S Small in April 1999. Then, the first-prize payouts for both games were reduced by RM200 respectively to RM2,300 (4D Big) and RM3,300 (4D Small) in response to the Government's raising of pool betting duty in November 1998.

Empirical data do suggest that punters are highly sensitive to lower prize monies offered by legal NFOs; hence, a very strong likelihood to see punters shifting towards illegal operators, which offer more lucrative prize payouts, Affin Investment Bank analyst Chong Lee Len explained in her report.

On a positive note, however, lower prize payouts would usually be positive for NFOs' bottom lines as a result of higher savings.

Analysts viewed the latest revision of the 4D Big Game's prize structure as a compensating measure towards the higher pool betting duty introduced in the middle of this year. (The Government had in June raised the pool betting duty from 6% to 8%.)

According to analysts, NFOs were expected to retain their net profit margins of 10% to 11% under the new prize structure. As a reflection of the recovery in their net profit margins, one could expect to see NFOs' earnings increase too. BToto's earnings would likely grow by 4% to 13% over the next three years, according to the estimates computed by analysts.

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