The research firm said Sports Toto Bhd's operations in Perlis remain shut, but the Federal Court's rejection of the Kedah government's bid to reinstate a ban on lottery operations could have implications beyond the state.
"We believe the state government's decision to halt licence renewals may well be eventually reversed given the outcome in Kedah," PublicInvest said in a note.
The Federal Court on Aug 12 denied the Kedah government's application for leave to appeal against an earlier ruling that overturned its decision to stop renewing business premise licences for lottery outlets.
In a separate note, RHB Research said Sports Toto's management is confident of resuming lottery operations in Kedah following the ruling, although the timeline remains unclear.
It estimates the resumption could provide a modest three per cent uplift to Sports Toto's lottery business, potentially providing some buffer against structural challenges facing the segment.
PublicInvest similarly said the Kedah ruling was positive for Sports Toto, although the financial impact would be limited as the state accounted for about three per cent of the group's total number forecasting sales.
It said Kedah and Perlis together represented less than four per cent of Sports Toto's Malaysian gaming operations.
Despite the potential reopening of the two markets, analysts remain cautious about the outlook for Sports Toto's core lottery business amid persistent competition from illegal operators.
RHB Research said easy access to illegal number forecast operators through digital platforms continued to weigh on the legal lottery market, with Sports Toto's sales per draw stagnating at RM17 million to RM19 million since financial year 2023 (FY23).
RHB Research and PublicInvest were more positive about contributions from Sports Toto's other businesses following a strong fourth quarter.
Sports Toto's fourth-quarter net profit jumped 55 per cent year-on-year to RM62.5 million, driven largely by contributions from overseas information technology projects, even as revenue fell 4.9 per cent to RM1.55 billion.
RHB Research said the stronger-than-expected contribution from these projects helped Sports Toto's FY26 earnings beat its and consensus forecasts, with management expecting the contribution to continue into the current quarter.
The research firm raised its FY27 earnings forecast by 14.2 per cent to reflect stronger contributions from the group's other segments.
RHB Research upgraded Sports Toto to "Buy" from "Neutral" and raised its target price to RM1.46 from RM1.39, implying an 11 per cent upside.
It said the stock is trading at its five-year average price-to-earnings ratio of 10 times, with further upside potential if Sports Toto resumes operations in Kedah.
PublicInvest, however, took a more cautious view, cutting its FY27 and FY28 earnings forecasts by an average of 11 per cent as it expects the operating environment for Sports Toto's underlying businesses to remain challenging.
Besides competition from illegal online betting operators, it expects Sports Toto's UK motor dealership business to be affected by weaker consumer spending amid geopolitical tensions in the Middle East.
PublicInvest maintained its "Neutral" call with an unchanged target price of RM1.40. - NST
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