IN spite of mounting challenges stemming from the US-China trade war and the slowdown in the global economy, TA Securities Holdings Bhd has reiterated its buy recommendation on Genting Bhd.
“With an unchanged target price (TP) of RM6.85/share, we put our bet on the company winning a casino licence in Japan via Genting Singapore Ltd (GENS) next year. It will have an enormous lottery effect if our expectation materialises.
“We maintain hold on Genting Malaysia Bhd (GENM) with an unchanged TP of RM3.27 in view of earnings risk from the inclusion of Empire Resorts next year, which is expected to offset rising non-gaming revenue from the Genting Integrated Tourism Plan (GITP) facilities.”
On the same note, the research house maintained its overweight call on the gaming sector.
“We downgrade Berjaya Sports Toto Bhd (BJToto) to hold (from buy previously) with an unchanged TP of RM2.93 as we believe the market has significantly priced in the positive measures announced in Budget 2020, for instance, stern penalties on illegal gambling, as the share price has increased 4.7% after the announcement of Budget 2020.”
Bidding for casino resort licences in Japan
The year 2020 will be a crucial one for casino operators for their chance to operate an integrated casino resort (IR) in Japan.
“So far, we understand there would be three IRs in Japan – in Osaka, Yokohama and Tokyo. In fact, IR bids have already started in Osaka and Yokohama where the former has officially accepted bids from MGM Resorts International, Genting Singapore and Galaxy Entertainment,” TA Securities said in the report.
According to GENS, the selection of the winner would likely be in 3Q 2020. Besides Osaka, GENS indicated that it is now preparing for Yokohama’s request-for-concept, which opened in October and will close on Dec 23, 2020.
20th Century Fox and Empire Resorts
Both stocks reacted positively to the settlement of a legal dispute between GENM and 20th Century Fox group. As part of the settlement terms, the companies have entered into a Restated Memorandum of Agreement granting GENM a licence to use certain Fox intellectual properties.
GENS and GENM shares closed 16 sen and 23 sen higher on July 26, the day after the announcement as the new memorandum of agreement would augur well for GENM’s outdoor theme park operations.
However, the stocks suffered a major setback and had fully given back their July gains the following month when GENM entered into a related party transaction (RPT) to acquire loss-making Empire Resorts from Kien Huat Realty.
GENS and GENM shares closed 47 sen and 43 sen lower on Aug 14, the day after the announcement as Empire Resorts’ expected future losses are expected to drag GENM’s near-term profitability.
For the Japanese IR licences, winners will likely be known at end-3Q20 or 4Q20.
“In spite of intensifying global trade tension, we believe any IR winning bids will be a game-changer for winners to gain access to a market with annual gaming revenue of an estimated US$15 bil,” TA Securities noted.
It said MGM, which has teamed up with Japanese financial services group Orix Corp, could be the favourite for the Osaka IR licence. The company recently said it would invest one trillion yen (US$9 bil) in Osaka IR and hire 15,000 people. Meanwhile, Galaxy indicated that the scale of investment in Osaka would be similar to its eventual investment in Macau of HK$100 bil.
For GENS, the company recently issued a Japanese yen-denominated bond of up to 350 billion yen. It has relatively strong financial muscles with net cash of S$3.4 bil to handle multi-billion projects. More importantly, the company has proven its strength to operate in one of the toughest environments in terms of rules and regulations.
“As such, we see an equal chance for any of these companies to win in this triple-treat match,” said the research house.
The gaming sector has failed to live up to market expectations this year given the lacklustre recovery in share prices on the heels of a disastrous 2018. The shares of GENS and GENM had both nosedived last year.
Recall the surprise announcement of additional gaming tax in Budget 2019, termination of 20th Century Fox theme park at Genting Highlands, and the halving of special draws to 11 per year for number forecasting operators. As a result, GENS, GENM and BJToto share prices fell by 33.8%, 46.8% and 5.8% respectively in 2018.
Although GENM has regained some lost ground, GENS is still stuck in negative trajectory with year-to-date (YTD) price recoveries lethargic vis-à-vis declines of more than 30% in 2018.
BJToto has been the only bright spot in the gaming sector with a price advance of 25.6% YTD, thanks to its defensive quality and stern penalties announced in Budget 2020 for illegal gambling.