REMAINING a significant market laggard – particularly the number forecast operator (NFO) subsector – Malaysia’s gaming sector is poised to regain its lustre as the visibility on earnings and dividends improves tremendously with the recent re-opening of the country’s borders and removal of most pandemic-related constraints.
As such, UOB Kay Hian Research expects the NFO subsector which is still trading close to the pandemic lows to remain as an ideal defensive haven amid a risk-off market given its low beta, steady cash flow streams and lush dividend yields.
“While current ticket sales and revenue have recovered to only 80-85% of pre-pandemic levels, we expect the recent weeks’ removals of MySejahtera scanning and capacity restrictions coupled with the nation’s re-hiring of migrant workers to further revitalise the NFOs’ earnings recovery to >90% of pre-pandemic levels by as early as 2Q 222,” projected head of research Vincent Khoo in a sector update.
“Both Sports Toto Bhd and Magnum Bhd also offer sustainable prospective yields of 4.3%-6.7% from FY2022 onwards and close to 8% in FY2023, backed by earnings resilience and stable payout ratio of 80%-90%.
“This should satisfy investors’ hunger for sustainable high-yield plays in a low interest rate environment and volatile capital market.”
As for the casino subsector, UOB Kay Hian Research expects both Genting Bhd’s and Genting Malaysia Bhd’s 1Q-2Q FY2022 results to likely see sequential earnings recoveries with Resorts World Genting’s (RWG) gross gaming revenue (GGR) returning to 70-75% of 2019’s level (4Q 2021: +60%).
“This is buoyed by mass market GGR which will reflect tremendous pent-up demand from local patronage during festive seasons such as Chinese New Year and the recent Hari Raya holidays coupled with the gradual return of foreign patronage,” envisages the research house.
“The excellent recoveries in the group’s overseas operations, particularly in the US where gaming revenues have surpassed pre-pandemic levels, are also uplifting.”
Moreover, Genting Malaysia’s expected 2H 2022 bid for a downstate New York gaming concession will serve as a key re-rating catalyst.
“Winning the concession could jump-start the listing of the group’s US operations,” noted UOB Kay Hian Research which reiterated its “overweight” stance on the gaming sector with its top picks being Genting Malaysia and Magnum. – May 10, 2022
