This article first appeared in The Edge Financial Daily on November 7, 2018
KUALA LUMPUR: Genting Malaysia Bhd had its nerve-wracking biggest single-day fall in its history on Monday after the news on the government’s decision on a sharp 10% hike in casino duties.
Within the first five minutes into trading on Bursa Malaysia, panic selling hammered its share price down by nearly 43% to a low of RM3.18 from the previous closing of RM4.54. Year to date, the stock price slipped 35% or RM1.93.
The stock price regained some lost ground later. Still, it tumbled 20.5%, or 93 sen, to three-year low of RM3.61, with some 379.04 million shares traded, making it the most actively-traded stock on Bursa Malaysia. The volume has far exceeded its 200-day average volume of 6.42 million shares.
To raise public revenue, the government increases casino duties by up to 35% from 25% on gross gaming income and gaming machines duties to 30% from 20% on gross collections. The Ministry of Finance, which issues the casino licence, also increases the annual casino licence fees by RM30 million to RM150 million, and machine dealer’s licence to RM50,000 from RM10,000 a year.
The 10% hike in gaming duties on gross collections to 35% would possibly mean that for every RM100 a patron bets on the table game, RM35 (slightly more than one third) will go to the nation’s coffers.
Nonetheless, a fund manager noted that there are some confusions about the increase in duties on the gross gaming revenue (GGR) between the high-rollers and the mass market segments, in which some research reports noted that Genting Malaysia is currently subjected to casino duties of 10% for GGR for the very important person (VIP) segment and 25% for the mass market segment.
It is not clear if the gaming duties on both segments would rise to 35%, or that the duties on VIP segment would increase by the same quantum of 10% to 20% from 10% currently.
Analysts pointed out that they are still waiting for clarifications from Genting Malaysia and the Ministry of Finance.
An analyst noted that even if there is a difference in duty structure for the two segments, there would still be no relief given the drastic hike in casino duty.
Some analysts opined that the market had reacted negatively to the increase in duties announced in Budget 2019.
“At this level, looking at the volume, we suspect that they (Genting Malaysia) could have done some shares buyback (to support the share prices), and we have been advising clients to buy at this (low) level, which is well below our target price,” said an analyst, who declined to be named.
“I understand the negative implication, which is not only on one-year profit, but also the future years’ earnings,” the analyst explained.
Analysts have slashed their earnings forecasts by 30%.
According to Bloomberg data, 13 out of the 16 research houses covering the counter have updated reports on Genting Malaysia following Budget 2019, in which there were only two “buy” calls, six “hold” calls and five “sell” calls, with target prices between RM3.60 and RM5.50.
Notably, although Genting Malaysia’s share prices have fallen significantly, most of the analysts have not revised the target prices. Some are of the view that Genting Malaysia is still not that appealing compared with other regional players, in terms of valuations.
Another analyst noted that Genting Malaysia is certainly cheaper than previously, but it would only be considered to be “fairly priced” among the regional peers.
“Compared with the Macau casinos of price-to-earnings around the mid-teens, Malaysia was trading at high teens. But, because of the plunge today (Monday), Genting Malaysia’s valuation is now about the same with the lower end of the regional valuation,” said the analyst.