Malaysian gaming sector could see a turnaround

KUALA LUMPUR: Berjaya Sports Toto (BST) and Magnum reported stable and growing gaming revenue with Q3 industry lotto revenue hitting a record high, according to Maybank Investment Bank Research. 

The research firm has trimmed Magnum target price by 7% to RM2 for lower DPR of 60%, noting that it prefers BST over Magnum.

"Since 2010, industry revenue has declined 10% due to intense competition from illegal NFOs (since 2010) and poor consumer sentiment (since 2013). Interestingly, BST reported flat y-o-y
1QFY4/18 gaming revenue/draw (link) while MAG reported +1% YoY 2QFY17 gaming revenue/draw (link). 

"At first glance, these figures may not appear significant but taken in the context of seven years of decline, this is a positive development. We understand that this was due to the recent crackdown on illegal gambling especially in Melaka, Johor and Sarawak; and recovery in consumer sentiment."

Maybank IB Research noted that there will be more upside if enforcement against illegal NFOs improves and the Common Gaming Houses Axt 1953 amendments and Cyber Security Act are passed. 

Industry revenue as a percentage of nominal GDP is currently only 0.7% from a high of 2.3% in 1998.

"For now, we maintain our forecast that industry revenue will ease 2% this year before recovering 2% next year. Our EPS estimates for BST and MAG are unchanged. That said, we cut our DPS estimates for MAG by 24-27% while our DPS estimates for BST are unchanged. With no tax penalty overhang and higher dividend yields, we prefer BST over MAG. Note also that BST’s dividend yields are the highest since 2006," said Maybank IB Research.
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