Friday 29 Mar 2024
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KUALA LUMPUR (Oct 26): The gaming sector is set to generate meaningful capital appreciation from now until 2022 as Malaysia emerges from the Covid-19 pandemic, said UOB Kay Hian Research on Tuesday (Oct 26).

“As we roll over our valuations to 2022, the casino sub-sector offers a 26% to 32% upside, while the number forecast operator (NFO) sub-sector offers a 16% to 18% upside,” analysts Vincent Khoo and Jack Goh said in a note.

They foresee significant upside for the casino sub-sector due to various catalysts emerging that include the imminent opening of a world-class outdoor theme park, the initiation of ASEAN travel corridors and vibrancy of the US market (including New York City’s liberalisation).

They maintained "overweight" on the sector, with Genting Malaysia Bhd (GenM) (target price [TP]: RM4) and Genting Bhd (TP: RM6.77) as their top picks.

With Resorts World Genting (RWG) having reopened on Sept 30, followed by the lifting of interstate borders restrictions, Khoo and Goh expect the Genting group’s earnings to rebound sharply for the fourth quarter of 2021 (4Q21) and 2022.

In Malaysia, tremendous pent-up demand from local patronage, which accounts for more than 70% of RWG’s visitorships, as well as the long-awaited opening of Genting SkyWorlds in November are expected to stoke a swift earnings recovery, they said.

They also noted that Malaysia is currently eyeing a trial border reopening for international tourists in November after a nearly two-year closure to revive the tourism industry, which would provide a significant uplift to the casino sub-sector.

Foreign patronage, particularly from the ASEAN countries, made up about 25% of RWG’s pre-pandemic footfall.

The analysts' forecasts have modelled in a full intra-regional border reopening from the second half of 2022 (2H22).

“Coupled with an excellent recovery in overseas operations, particularly of US casinos where gaming revenue has surpassed pre-pandemic levels, both GenM and Genting are the top investment selections to capitalise on the post-pandemic leisure boom,” they said.

As for the NFO sub-sector, given the government’s clear intention to restore a semblance of normalcy, the analysts no longer expect a strict lockdown to be reimposed.

“We expect the resilient NFO sub-sector to stage a steep earnings recovery soon to reach 80% to 85% of pre-pandemic revenue, although the current recovery trend has lagged the previous reopening phase [in 2H20],” they said.

According to them, the recent lifting of the ban on migrant workers as well as potential replacement draws until 2022 are also expected to further revitalise NFOs’ earnings recovery to more than 90% of pre-pandemic levels by as early as 1Q22, which would allow Magnum Bhd and Berjaya Sports Toto Bhd (BToto) to restore their past dividends, yielding 5.8% to 6.7% for 2022.

However, UOB Kay Hian prefers Magnum (TP: RM2.45) over BToto (TP: RM2.46) for exposure to the NFO sub-sector, given the former's “hidden value” of a 6.3% stake in U Mobile (book value: RM270 million or 7% of its market capitalisation), which could be listed by 2022.

Meanwhile, Khoo and Goh opined that the government is unlikely to raise gaming duties or licensing fees against the Genting group and NFOs in planning for Budget 2022 as the government would logically need to allow gaming companies to regain sound financial footing, while an abrupt rise in gaming duties would render Malaysia regionally uncompetitive and backfire on the need to raise revenue.

“Note that tourism plays a vital role in the Malaysian economy and contributed about 16% of the country’s gross domestic product in 2019,” they said.

Edited ByJoyce Goh
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