Genting, BJToto rise as gaming sector seen benefitting from lower taxes

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KUALA LUMPUR (Sept 29): Gaming stocks like Genting Bhd, Genting Malaysia Bhd and Berjaya Sports Toto Bhd (BJToto) rose in anticipation of Malaysian policymakers reducing taxes for the sector in the upcoming budget.

At 3:53 pm, Genting Bhd shares rose five sen or 0.54% to RM9.35. Meanwhile, Genting Malaysia was flat at RM4.16, while BJToto rose three sen or 0.8% to RM3.80.

According to a note today by TA Securities Holdings Bhd, the government is expected to reduce gaming taxes in order to maintain the competitiveness of local casinos versus regional rivals.

TA analyst Tan Kam Meng said the government was expected to make downward adjustments for gaming taxes under Budget 2015, which will be tabled next month.

“We reiterate our view that we expect a minor adjustment in the gaming tax for Genting Malaysia, to implement the goods and services tax (GST) system. Otherwise, it may deal a serious blow to company’s future capital spending, as GST will have long term implications on profitability,” said Tan.

Tan said imposing GST without an adjustment in gaming tax, would eat into Genting Malaysia's profit.

“In our earnings model, Genting Malaysia's FY16 earnings would be reduced by approximately 7% and this would contribute to approximately 3% reduction in Genting’s earnings. However, the GST impact would be offset, if the gaming tax rate is to be reduced by 3% to 22%,” he said.

Tan upgraded TA's sector call on the gaming industry to “overweight”, from “neutral” previously. He raised Genting Bhd shares to a “buy” from “hold", with a target price of RM10.69.

Tan upped Genting Malaysia to a “hold” from “sell”, with a target price of RM4.57.

“For BJToto, we reiterate our Buy recommendation and target price of RM4.51, in anticipation of high dividend for FY15-17, yielding 7.2-7.4%” Tan said.