THE COVID-19 vaccine-led recovery play which has gained momentum of late has boosted the casino subsector of the gaming industry with prospects of significant capital recoveries as valuations are expected to partially price in 2022 earnings.
Despite the uncertain timing of borders re-opening or vaccination roll-out, UOB Kay Hian Research expressed optimism that earnings of the Genting Group will steadily recover in 1H 2021, principally led by its Malaysia and Singapore operations.
“We expect good EBITDA (earnings before interest, taxes, depreciation and amortisation) recovery for Genting Malaysia Bhd given the vibrant visitations by domestic day-trippers and tourists to Resorts World Genting (RWG) that made up about 70% of its 2019 revenue,” projected analyst and head of research Vincent Khoo.
“We also expect a continuing uptrend in domestic visitations to RWG which is highly dependent on domestic tourists (>70% of visitorship and >50-60% of revenue).”
In a gaming sector update, Khoo also expects Genting Singapore’s revenue recovery to remain encouraging in 1H 2021, well-supported by the strong local patronage and recovery of international visitors following the Singapore government’s travel arrangements with about 10 neighbouring countries.
As for the number forecast operator (NFO) subsector, UOB Kay Hian Research also foresees stronger earnings outlook with likely replacement draws in 2021.
“While our channel checks revealed that ticket sales have recovered to about 85-90% of pre-MCO (movement control order) levels since 3Q 2020, we expect sales to further improve and sustain at about 90% of pre-MCO levels in 1H 2021,” opined Khoo in a gaming sector update.
According to the research house, punters are starting to adapt to the standard operating procedures (SOPs) and are more willing to place bets at the physical outlets as compared to when the NFOs re-commenced operations in mid-June.
“We also expect the government to grant the NFOs replacement draw days which may moderately lift our earnings forecasts,” noted Khoo.
All-in, UOB Kay Hian Research maintained its “overweight” rating on the gaming sector with “buy” calls on Genting Malaysia, Genting Bhd, Magnum Bhd and Berjaya Sports Toto Bhd.
“Both the casino and NFO subsectors can sustain prospective dividend yields of 4-7% and 6-7% respectively which are at the high end among mid-large cap stocks within our coverage,” added the research house. – Dec 15, 2020
