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Gaming sector
Maintain “neutral”:
Key focus areas for 2015 are mainly centred on Genting Bhd’s (Genting) progress in winning new casino licences. Its subsidiary Genting Singapore  is making good progress in South Korea and we understand that Resorts World Jeju could see the light of day in the first half of 2015.

In addition, we expect further clarity on Genting’s Resorts World Las Vegas in the United States. However, the casino bill in Japan may have to wait as we believe Japanese Prime Minister Shinzo Abe may use the reelection victory to drag Japan out of deflation.

We are disappointed that Genting Malaysia Bhd’s bid for a casino licence in upstate New York did not materialise. We believe factors other than potential tax revenue may have played an influence in the award. It remains to be seen where Genting Malaysia may make its next move in the US, but we believe it would need to be selective given rising competition from new casinos amid moderating industry growth. At this juncture, we are not aware of potential new casino licences to be issued in the US.

A potential headwind, however, is the implementation of the 6% goods and services tax (GST) due in April 2015 that impacts Genting Malaysia and Berjaya Sports Toto Bhd (BToto).  

The implementation of the GST is negative for Genting Malaysia, as we understand that the casino will absorb the tax. For the number forecast operator (NFO) players, we are waiting for further clarification although we suspect the NFO players may potentially pass on the 6% GST cost to consumers through lower prize money to be paid out.

Possible positive surprises include: i) better-than-expected luck factor; ii) faster-than-expected turnaround of Resorts World Bimini at Genting Malaysia; and iii) liberalisation of regulation to allow locals to enter casinos in South Korea.

Key risks to our positive view on the sector are: i) relatively high foreign shareholding; ii) weaker-than-expected Chinese VIP arrivals at Genting Singapore; and iii) weak luck factor.

Tactically, the sector could still benefit from a return of capital flows as the gaming sector is seen as generally defensive and is a foreign investor favourite. We still like BToto for its high dividend yields. — AffinHwang Capital Research, Dec 30

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This article first appeared in The Edge Financial Daily, on December 31, 2014.

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