BUOYED by encouraging vaccination rates in countries with its presence, the Genting group which is made up of Genting Malaysia Bhd (GenM) and Genting Bhd is poised for significant earnings recovery in 4Q 2021, according to UOB Kay Hian Research.
This has prompted the research house to reiterate its “overweight” outlook on the gaming sector in view of the sector’s earnings resilience and appealing sustainable yields (4%-7%) beyond the COVID-19 period.
“Besides being a key economic reopening beneficiary, the casino subsector has gone ex-capex which provides the flexibility to enhance capital management,” opined head of research Vincent Khoo in gaming sector update.
The research house named GenM as it top pick, given its domestic-centric business model appeal, pent-up demand of local trippers that account for about 65%-70% of Resorts World Genting (RWG) visitors, high prospective dividend yield and Resorts World New York City’s potential to become a full-fledged casino.
“We also expect GenM to deliver much more meaningful recoveries in 4Q 2021 when visitation strongly rebounds and when Genting Highland’s outdoor theme park opens its doors,” projected UOB Kay Hian Research.
For the record, RWG was initially scheduled to reopen on Oct 1 after being named by the Tourism, Arts and Culture Ministry as one of three domestic tourism bubbles.
Nevertheless, the travel bubble proposal was delayed and RWG will only reopen around mid-October after 90% of the nation’s adult population is fully vaccinated (currently: 84%).
However, other Genting group premises in Malaysia such as Resorts World Kijal, Resorts World Langkawi and Genting Premium Outlets are already back in business.
Moreover, in countries such as the UK, US, Singapore and Egypt where the group operates, business has resumed with governments of those countries orchestrating staggered re-opening schedules to revive their economies.
“We note that Las Vegas Strip recorded its best financial performance in eight years with US$794 mil in gambling revenue in July. This is about a 46% increase compared to pre-pandemic levels in July 2019,” observed UOB Kay Hian Research.
“We believe that the resilient recovery in gaming revenue is fuelled by pent-up demand similar to the ‘revenge spending’ phenomenon, and Resorts World Las Vegas (RWLV) is poised to benefit from it.”
Elsewhere, the research house noted that the Malaysian Government is unlikely to raise gaming tax or licensing fees for the Genting group in Budget 2022 unlike in Budget 2019 whereby the annual casino license fees were raised from RM120 mil to RM150 mil and casino duties by 10 percentage points.
“Logically, the Government needs the group to regain sound financial footing as an abrupt rise in gaming taxes would render Malaysia regionally uncompetitive,” added UOB Kay Hian Research.
At 11.46am, GenM was down 6 sen or 1.94% to RM3.03 with 4.77 million shares traded, thus valuing the company at RM18 bil. – Sept 29, 2021
