ALLIANCEDBS Research is positive on numbers forecast operators (NFOs) in view of their exciting prospects.

“Moving into 2020, we continue to advocate investing in NFOs for exposure to the gaming sector as we remain positive on the sector’s fundamentals and its exciting growth prospects.

“On the other hand, we maintain our cautious stance on Genting Malaysia Bhd in view of weakened earnings prospects and dampened investor sentiments due to its related party acquisition of Empire and the on-going US-China trade tensions which could dampen domestic and regional discretionary consumption growth and thus limiting visitations to Genting Highlands,” the research house said in a note on Jan 7.

According to the research house, the bullish stance on NFOs since late 2018, supported by the intensified clampdown of illegal NFOs, has been fruitful so far with both listed NFOs giving recommendable returns of more than 25% in 2019, outperforming the FBM KLCI (-6%).

“For 2020, we expect the clampdown on illegal NFOs to further intensify with the enforcement of minimum penalties for both sellers and punters and potential sector liberalisation to attract punters back to the legal market,” it said.

As such, the research house has maintained its overweight recommendation on the gaming sector.

“We are maintaining our overweight stance on the gaming sector. Our top pick is

Berjaya Sports Toto (buy, TP: RM3.10) and we retain our buy recommendation for Magnum (buy, TP: RM3.20).

“As dominant players in the NFO sector, we are optimistic that both Berjaya Sports Toto and Magnum will continue to benefit from the authorities’ more stringent enforcement to curb illegal NFO activities in 2020, which will continue to drive their earnings growth.”

It added that Berjaya Sports Toto is the top pick for the sector in view of its improving earnings prospects and an attractive dividend yield of more than 6%.

“For Magnum, although we continue to be positive on its outlook, we are cautious that the potential RM183 mil tax liabilities imposed by the Inland Revenue Board could restrict its ability to pay a high dividend going forward,” it said.

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