This article first appeared in The Edge Financial Daily on April 7, 2020

Gaming sector 
Maintain neutral: Last Friday, Singapore Prime Minister Lee Hsien Loong pushed the “circuit breaker” to contain Covid-19. He introduced several containment measures including temporarily closing most workplaces, except for essential services and key economic sectors for a month, effective today. 

Businesses categorised as essential services include food establishments, markets and supermarkets, clinics, hospitals, utilities, transportation, key banking services and businesses strategic to or form part of a global supply chain. 

Clearly, leisure and entertainment operations such as casinos, theme parks, hotels and meetings, incentives, conferences and exhibitions are not essential. This means Genting Singapore Plc and Marina Bay Sands will be closed for a month from today. 

Genting Singapore’s one-month closure, on the heels of the temporarily closure of Genting Malaysia Bhd’s operations in Malaysia, the US and UK, will deal a second blow to its parent Genting Bhd. However, we believe this is not unexpected in the market since Covid-19 has become a global pandemic and with the public advised to avoid mass gatherings and adhere to social distancing. 

In our forecasts, we estimate a potential revenue loss of S$202 million per month for Genting Singapore, translating into its earnings reducing 23.6% for financial year 2020 (FY20) if without any massive cost reductions. Consolidating this with Genting’s earnings, we would see its FY20 earnings declining 14.9%. 

Considering Genting Singapore’s temporarily closure and assuming a decline in gaming volume exacerbating to 50% this year, from a 5% contraction previously, after factoring in the International Monetary Fund’s warning about a global recession in 2020, our FY20 and FY21 earnings forecasts for Genting Singapore are cut 43.4% and 2.1% respectively. We reckoned the cut is not excessive if this is compared with the industry’s performance in Macau. 

Take note that gaming revenue in Macau dropped 87.8% and 79.7% year-on-year (y-o-y) for February and March respectively. For the first quarter of 2020, the total gaming revenue in Macau declined 60% y-o-y. 

We also take this opportunity to cut Genting Malaysia’s FY20 and FY21 earnings forecasts by 40.6% and 1.7% respectively to factor in our new assumptions — Resorts World Genting’s very important person volume to decline 40% y-o-y from -9% previously, and the mass volume to decline 10% (-5% previously); Genting US and Genting UK’s gaming volume to decline 20% (-10% previously). 

For Genting, our FY20 to FY21 earnings forecasts are reduced 38.5% and 1.8% respectively after incorporating our new earnings estimates for Genting Malaysia and Genting Singapore. 

We downgraded Genting Malaysia to a “sell” call from “hold” previously with a lower target price (TP) of RM2.03 a share from RM2.09 previously, while maintaining our “buy” rating for Genting with a lower TP of RM5.35 a share from RM5.53 previously. 

Looking at new Covid-19 cases in Malaysia and Singapore, breaking new highs these days, there is still a substantial risk that the temporarily closure will be extended. As such, we put our recovery bet on Genting rather than Genting Malaysia as the latter will be hit directly by the closure of casino. 

For numbers forecast operator player Berjaya Sports Toto Bhd (BJToto), we downgraded the stock to “sell” from “hold” previously with an unchanged TP of RM2.32 a share. Our “neutral” stance on the gaming sector is maintained. — TA Securities, April 6