MALAYSIA’s gaming sector is set to generate meaningful capital appreciation from now till 2022 as the country emerges from the COVID-19 pandemic.
Pointing to the casino subsector, UOB Kay Hian Research expects Genting Group’s earnings to rebound sharply in 4Q FY2021 through to 2022 with Resorts World Genting (RWG) having reopened on Sept 30 followed by the lifting of interstate borders restrictions.
“In Malaysia, the tremendous pent-up demand from local patronage which accounts for >70% of RWG’s visitorship as well as the long-awaited opening of Genting Skyworlds in November are expected to stoke swift earnings recovery,” projected head of research Vincent Khoo in a gaming sector update.
“Coupled with excellent recovery in overseas operations, particularly in the US casinos where gaming revenue has surpassed pre-pandemic levels, both Genting Malaysia Bhd and Genting Bhd are the top investment selections to capitalise on this post-pandemic leisure boom.”
As for the number forecasting operator (NFO) subsector, UOB Kay Hian Research expects the resilient NFO subsector to stage a steep earnings recovery soon to reach 80-85% of pre-pandemic revenue although the current recovery trend has lagged the previous re-opening phase (in 2H 2020).
“The recent lifting of the ban on migrant workers as well as potential replacement draws through to 2022 are also expected to further revitalise the NFOs’ earnings recovery to >90% of pre-pandemic levels by as early as 1Q 2022 which will allow Magnum Bhd and Berjaya Sports Toto Bhd to restore their past dividends that would yield 5.8-6.7% in 2022,” reckoned the research house.
Moving forward, UOB Kay Hian Research does not expect the gaming industry to suffer from duty hikes and higher licensing costs from the upcoming Budget 2022.
“The Government is unlikely to raise gaming duties or licensing fees on Genting Group and the NFOs in planning for its Budget 2022 as it would logically need to allow the gaming companies to regain sound financial footing,” suggested the research house.
“An abrupt rise in gaming duties would render Malaysia regionally uncompetitive and backfire on the need to raise revenue. Note that tourism plays a vital role in the Malaysian economy and contributed about 16% of the country’s GDP (gross domestic product) in 2019.”
All in all, UOB Kay Hian Research retained its “overweight” rating on the gaming sector with Genting Malaysia and Genting Bhd as its top picks.
“While the sector has outperformed the FBM KLCI by 17.6% year-to-date (YTD), we expect the casino subsector to significantly outperform the index through 2022,” predicted the research house.
“We also introduce our 2022 target prices for Genting Malaysia and Genting Bhd at RM4 and RM6.77 respectively. For exposure in the NFO subsector, we prefer Magnum.” – Oct 26, 2021
