PETALING JAYA: Investors should remain invested in the listed number forecast operators (NFOs) for 2020, says AllianceDBS Research analyst Cheah King Yoong.
The bullish stance is backed by the government’s intensified clamp down of illegal NFOs, the gaming sector’s fundamentals and its “exciting growth prospects”.
“For 2020, we do expect the clampdown on illegal NFOs to further intensify with the enforcement of minimum penalties for both sellers and punters part in the illegal NFO market and potential sector liberalisation to attract punters back to the legal market.
“Market may have underappreciated the minimum penalties announced in Budget 2020.
“We believe that such high penalties and long jail terms imposed on both punters and illegal operators, if enforced and marketed effectively, could greatly discourage both parties from participating in the illegal NFO market.
“Therefore, we believe there is still plenty of room for the NFOs to grow their earnings if the authorities successfully reduce illegal NFO activities, ” Cheah said in a note yesterday.
The government in Budget 2020 has proposed a higher minimum mandatory penalty of RM100,000 for punters patronising illegal gambling outfits, along with a minimum mandatory jail sentence of six months.
For illegal operators, a higher minimum mandatory penalty of RM1mil and a 12-month minimum mandatory jail sentence will be imposed.
Cheah pointed out that while there are no official estimates of the illegal NFO’s market size, it is estimated to be about two times of the legalised NFO market.
AllianceDBS Research remains “overweight” on the domestic gaming sector, with a “buy” call on Magnum and a target price of RM3.20.
It also has a “buy” call recommendation on GENTING BHD and a target price of RM7.25 from a valuation perspective. As for Genting Malaysia Bhd, AllianceDBS Research remains cautious on the counter, in view of its weakened earnings prospects and dampened investor sentiments, among others.
Its rating for Genting Malaysia was “fully valued”, with a target price of RM2.90.
AllianceDBS Research’s top pick for the gaming sector was BToto. The target price for BToto has been left unchanged at RM3.10.
“We remain optimistic on BToto’s earnings prospects going forward, ” Cheah said in a separate note.
The NFO’s outlook will be underpinned by its launch of new game variants and the increased enforcement against illegal NFO players.
“We believe that its launch of a complete new game variant (4D Zodiac) in June, without replacing existing game, indicates the increased willingness of the authorities to further liberalise the NFO sector. This serves as a positive development for the NFO sector.
“At present, BToto offers an attractive sustainable yield of over 6%. As such, investors could enjoy the attractive yield offered by the group while riding on these investment themes.“Potential or on-going monetary easing moves by major global central banks and Bank Negara could also promote a yield-seeking investing strategy, which favours companies like BToto, ” he said.
Moving forward, BToto’s gaming revenue growth per draw per outlet is forecast to trend higher by 1.2%, 5%, 2% for the financial years of 2020,2021 and 2022 respectively.
The relatively modest gaming revenue growth of 1.2% expected in FY20 is partly dragged by the lower number of draws.
In 2020, the special draws for the NFOs will be reduced to eight draws, as compared to 11 draws in 2019.
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