Why Sports Toto Berhad's Shareholders Are in the Red Despite Earnings Growth

The paradox of earnings growth and shareholder underperformance has long puzzled investors, and Sports Toto Berhad (KLSE:SPTOTO) exemplifies this disconnect. Despite reporting a 7.32% year-on-year earnings increase in 2025 and a 1.96% revenue rise to RM6.48 billion, the stock closed 2025 at RM1.38-a price that reflects a valuation far below its intrinsic worth. This article unpacks the valuation disconnect and market sentiment dynamics driving this anomaly, drawing on recent financial data and industry benchmarks.

Valuation Disconnect: A Tale of Two Metrics

Sports Toto's current Price-to-Earnings (P/E) ratio of 8.44 is starkly lower than its historical average of 12.83 and the 10-year industry average of 21.9x. Even more striking is its Price-to-Book (P/B) ratio of 1.6x, which has fallen below the 2.3x average recorded between 2021 and 2025. These metrics suggest the market is undervaluing the company's fundamentals. For context, intrinsic valuation models estimate SPTOTO's fair value at MYR3.01, implying a 55% undervaluation relative to its current price of MYR1.35.

The disconnect is further amplified by the company's peer comparison. While SPTOTO's P/E ratio of 8.3x is significantly lower than the Asian Hospitality industry average of 21.9x and the peer average of 49.2x, it has not translated into investor confidence. This divergence highlights a critical question: why is the market assigning such a low multiple to a company with improving earnings and a robust return on capital employed (ROCE) of 18%?

Market Sentiment: External Pressures and Internal Challenges

Market sentiment toward SPTOTO appears to be shaped by a confluence of external and internal factors. Externally, global trade uncertainty has compressed margins in key segments such as National Football Operations (NFO) and car franchises. Analysts have revised earnings forecasts downward due to higher-than-expected prize payouts and rising operating expenses, eroding confidence in the company's ability to sustain profitability.

Internally, SPTOTO's reliance on current liabilities and mixed dividend sustainability- marked by a 9.4% annual decline in dividends over the past decade-has raised concerns about shareholder returns. While the company's ROCE of 18% is commendable, investors seem to be prioritizing short-term liquidity risks over long-term capital efficiency. This is evident in the stock's underperformance despite a 15% annualized EPS growth over five years.

The Psychology of Undervaluation

The market's reluctance to re-rate SPTOTO may also stem from behavioral biases. Investors often anchor to historical valuation norms, and SPTOTO's current P/E of 8.44- a 27.93% drop from its four-quarter average-signals a departure from its long-term trajectory. Additionally, the company's exposure to cyclical sectors like sports betting and automotive franchises makes it vulnerable to macroeconomic headwinds, amplifying risk aversion.

Conclusion: A Case for Reassessment

Sports Toto Berhad's earnings growth and undervaluation present a compelling case for investors willing to look beyond short-term volatility. However, the path to re-rating hinges on the company's ability to address margin pressures, stabilize operating costs, and restore dividend credibility. For now, the valuation disconnect persists-a testament to the complex interplay between fundamentals and market sentiment.