AFTER several false starts, the gaming industry is now on a more sustained recovery path, supported by a shift in stance by countries that are moving away from a total lockdown approach and towards tightening restrictions in response to COVID-19 threats.
Against such backdrop, the outlook for the gaming industry is on an upward trend, following re-opening of businesses from number forecast operators (NFOs) and Resort World Genting (RWG), as well as the easing of traveling restrictions in Singapore, according to Hong Leong Investment Bank (HLIB) Research.
“We upgrade our sector rating to ‘overweight’ (from ‘neutral’) supported by the improving industry outlook,” analyst Tan Kai Shuen pointed out in a gaming sector outlook 2022.
“While investors should be wary that the recovery path for the industry is likely to be a choppy one as COVID-19 will continue to be a lingering risk, we believe that after two years of battling and living with COVID-19, countries are now better equipped to avoid a reversion to a full lockdown situation.”
Thus, this will help to pave a more sustained recovery path for the gaming companies compared to 2021 when the industry was plagued with multiple prolonged lockdowns.
HLIB Research’s top pick for the sector is Genting Bhd as it believes the company is trading at a huge holding discount of >50% to its sum-of-part (SOP) valuation.
“We like Genting for its deep expertise and experience in managing the gaming and hospitality businesses and its well-spread operations across different regions which help to mitigate regulatory and country risks,” justified the research house.
“Furthermore, Genting provides an exposure to Resorts World Las Vegas (RWLV) which we believe will have strong growth potential in the longer term.”
Despite RWLV was off with a slower start with a revenue of US$175 mil (RM722.8 mil) and earnings before interest, taxes, depreciation, and amortization (EBITDA) of US$27 mil (RM110 mil) in 3Q 2021, HLIB Research expects a robust turnaround backed by:
- The robust Las Vegas Strip gaming revenue growth which is now above pre-COVID levels despite the mask mandate;
- The openings of retail, restaurants and entertainment venues (note that non-gaming revenue typically make up half or more of Las Vegas Strip revenues); and
- The likely lifting of mask mandate in early 2022.
“Improved visitations will allow RWLV to achieve better economies-of-scale,” opined the research house while retaining its “buy” call for Genting with an unchanged target price of RM6.20.
At the close of today’s mid-day trading session, Genting was up 9 sen or 2% to RM4.60 with 3.07 million shares traded, thus valuing the company at RM17.83 bil. – Dec 23, 2021
