PETALING JAYA: After hitting multi-year lows at the end of last year, stocks within the gaming sector are now seen as ideal for bottom-fishing.
Kenanga Research said that while the sector has performed well, particularly the number forecast operators (NFO) since the end of last year, it saw further upside for the stocks.
“Although prices have rallied strongly, we believe there is further to go, especially for the NFO players on ticket sales upticks as enforcement tightens its grip to curb illegal operators,” it said in a note.
The research house said NFO players still offered an attractive net yield of 5%-6% despite the recent strong share price performance, making them an ideal investment option for income-seeking investors.
NFO players have continued to post significant sequential improvements in ticket sales in the latest quarterly results, partly attributed to the Chinese New Year effect.
In fact, the research house said, Berjaya Sports Toto Bhd’s (BToto) average ticket sales per draw of RM21.7mil for the fourth quarter of 2019 was the highest since fourth quarter 2013, while Magnum Bhd’s first quarter 2019 average ticket sales per draw of RM19.6mil was also the highest in six years.
Overall, Kenanga Research said the sector had reported a decent set of results in the latest earnings season.
“Although casino numbers missed our optimistic estimates, they were better than consensus,” it said.
The earnings of both Genting Malaysia and Genting Singapore were better sequentially in the first quarter of 2019, owing to the “better luck” factor with improved business volume for premium business.
Both BToto and Magnum, meanwhile, reported strong numbers, as the NFO players registered the strongest average ticket sales per draw in six years.
Going forward, the research house expects to see a weaker sequential business volume in the second quarter after the seasonally strong CNY-led quarter.
For casino operators, it said, the outlook is mixed, with Genting Singapore facing challenging business conditions due to trade and geopolitical tensions, while the gaming tax hike eats into Genting Malaysia’s profit margin.
“Nonetheless, we believe the continuous clamping down on illegal operators will help to boost ticket sales of the legal NFO players,” it said.
It maintained its “overweight” stance on the sector, with Btoto as its top pick for its attractive valuations.
Meanwhile, as it appeared that the impact from the 10% hike in gaming duties was not as severe as earlier feared, the research house expects sentiment for Genting Malaysia to improve, with Genting Bhd to also benefit.