Analysts see cards improving for gaming sector, point to attractive valuation and appealing yields

Analysts see cards improving for gaming sector, point to attractive valuation and appealing yields
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KUALA LUMPUR (Jan 5): Analysts are upbeat on the prospects of the gaming industry in this new year driven by the potential easing of travel restrictions following the Covid-19 vaccine rollout.

“After a challenging 2020 that was clouded by the Covid-19 outbreak and nationwide lockdowns, the gaming industry is set to embrace a prosperous 2021, with high hopes and optimism of the efficacies of the various approved Covid-19 vaccines,” said UOB KayHian Research. 

“With the investment thesis sweetened by high dividend yields, gaming stocks’ valuations will partially price in the full earnings recoveries in 2022. Maintain 'overweight' with the casino subsector expected to deliver robust capital gains. 

"Maintain 'buy' on Genting Malaysia Bhd (GenM) (TP: RM3.40), Genting  Bhd (TP: RM5.50), Magnum Bhd (TP: RM2.55) and Berjaya Sports Toto Bhd (TP: RM2.46),” it added in a report today.

UOB KayHian also pointed out that the gaming sector’s yield “appeals”.

The research house believes that both the casino and numbers forecast operators (NFO) subsectors can sustain prospective dividend yields of 4% to 8% and 6% to 7% respectively in 2021, which are among the highest within its coverage universe. 

“While both the casino and NFO subsectors’ intermediate dividend payouts will be compressed by weaker earnings, investors should gradually price in the gaming sector’s sustainable prospective yields of 4.2% to 7.5% from FY21 onwards. 

"Meanwhile, we also expect GenM to [dole] out lucrative dividends for 2021, given its lush gross cash of RM3.7 billion (RM0.62/share) and considering parent Genting's cash needs to complete the construction of Resorts World Las Vegas. This should satisfy investors’ hunger for sustainable high-yield plays in a low interest rate environment and volatile capital market,” UOB KayHian noted.

Meanwhile, Kenanga Research opined that the “sector valuation remains attractive” as stocks are still 15% to 26% cheaper than a year ago. 

“In all, 2020 is a lost year. However, the recovery, led by casinos reopening, was strong in 3QFY20 and this should extend into 2021 as borders eventually reopen depending on the vaccine rollout progress. We believe NFO ticket sales should revert back to pre-MCO levels in 1HCY21 but casino operators would take longer time to normalise, possibly only in 2022,” Kenanga Research noted in a report today. 

“Overall, casino players, which were badly hit, are expected to lead a swift earnings rebound as opposed to NFO players for which ticket sales are currently at 80% to 85% of pre-MCO levels. 

"Still, we expect GenM to see strong local casino revenue with the opening of its outdoor theme park attracting tourists while Genting should benefit from the strong Genting Singapore numbers which is fairly sustainable. Meanwhile, although the authority had already approved the increase in special draws back to 22 draws in 2021 from only eight last year for the NFOs, it may not be earnings enhancing. Continuous enforcement clamping down on illegal players remains the key to drive ticket sales.”

“In all, we continue to rate the sector 'overweight' with Genting (TP: RM5.70) as our top pick for its deep value while for income seekers, both NFO players offer above-average yield of more than 5%,” it added.

Surin Murugiah