KUALA LUMPUR (Oct 2): A buying opportunity has emerged in Sports Toto Bhd (KL:SPTOTO) following a recent dip in its stock price, said RHB Research, which also flagged stronger lottery sales ahead.

Sports Toto has limited downside from now while its cash flow is still resilient, supporting dividend payouts, the research house said in upgrading the stock. Sports Toto is trading at about eight times forward earnings, mostly below its historical valuations, the house noted.

“While our outlook remains intact… the current valuation provides a more attractive risk-reward profile,” RHB Research said.

RHB Research is joining TA Securities in recommending ‘buy’ for Sports Toto. Shares of the number forecast operator have declined nearly 7% since the middle of July. At the current price, RHB Research’s target price of RM1.60 provides potential upside of over 14%.

There are also four ‘hold’ and no ‘sell’ calls on the stock. The consensus 12-month target price is RM1.50, according to the average of six analysts tracked by Bloomberg.

Sales of lottery tickets may improve in the July-September quarter, spurred by the RM78 million accumulated Supreme Toto 6/58 jackpot pool which was won on Aug 20, RHB Research flagged.

Further, Sports Toto’s luxury car business in the UK could see a modest lift from an industry-wide marketing campaign in September, though margins could stay under pressure due to high operating costs and depreciation charges from recent land acquisitions, the house said.

Overall, “given the improved sales outlook coupled with the defensive earnings nature and attractive yield, we believe the stock should re-rate closer to its historical average”, RHB Research added.