KUALA LUMPUR (Dec 23): Hong Leong Investment Bank (HLIB) Research upgraded its rating of the gaming segment to "overweight" from "neutral", supported by an improving industry outlook. 

In a report on Thursday (Dec 23), it said while investors should be wary that the recovery path of the industry is likely to be a choppy one as Covid-19 will continue to be a lingering risk, the research house believes that after two years of embattling and living with Covid-19, countries are now better equipped to handle it to avoid a reversion to a full lockdown situation. 

“Thus, this will help to pave a more sustained recovery path for gaming companies compared to 2021 when the industry was plagued with multiple prolonged lockdowns,” it added. 

HLIB Research’s top pick for the sector is Genting Bhd as it believes the stock is “trading at a huge holding discount of over 50% to its SOP (sum-of-parts) valuation”. 

“We like Genting for its deep expertise and experience in managing the gaming and hospitality businesses and its well-spread operations across different regions, which help to mitigate regulatory and country risks. Furthermore, Genting provides exposure to RWLV (Resorts World Las Vegas), which we believe to have strong growth potential in the longer term,” it added. 

It maintained its "buy" call on Genting with an unchanged target price (TP) of RM6.20. 

HLIB Research also believes that prospects for Genting Malaysia Bhd (GenM) “are improving with the return of crowds to Resorts World Genting, SkyWorlds opening and positive contributions from its US and UK operations”. It maintained its "buy" call on GenM with an unchanged TP of RM3.61.

It also maintained its "buy" call on Berjaya Sports Toto Bhd with an unchanged TP of RM2.26, noting that the stock currently provides a “decent dividend yield of 4.9%” based on HLIB Research’s projected dividend per share of nine sen for the financial ending June 30, 2022.

The gaming sector was one of the worst-hit sectors under the Covid-19 pandemic over the past two years, but HLIB Research noted that a recovery had been set in motion.  

“We believe that investors are increasingly developing 'immunity' against Covid-19 news that spooked markets, which is in line with the stance of most countries as they move away from a total lockdown approach towards tightening restrictions, recognising the detrimental effect of a full lockdown on the economy. 

“A case in point is when the recent Omicron variant news broke out. In the US, share prices of pandemic beneficiary stocks such as Zoom, Etsy, DoorDash and DocuSign were down after the news, contrary to what one might expect. 

“On the local front, pandemic beneficiaries glove stocks staged a transient rebound but tumbled shortly after. For gaming stocks, stock prices regained ground soon after they fell following the news. As investors start to turn their attention away from pandemic beneficiary stocks towards recovery stocks with sound fundamentals, the gaming companies which have stood on steadfastly through the pandemic may once again enter the radar of investors,” it added.