PETALING JAYA: Uncertainty over how long the Covid-19 pandemic will persist has led to the downgrade of the gaming sector to “neutral” from “overweight”.
HLIB Research gaming analyst Andrew Lim said the movement control order (MCO), which was extended by two weeks yesterday, had led to the closure of gaming operations for both the number forecast operators (NFO) and casino operators in Malaysia.
“As NFO operations do not fall under any essential services, they will be temporarily ceasing operations during the MCO and all purchased tickets for the respective draw dates within the period will be refunded, as there will be no prize claims, ” he noted.
He said a rough calculation implied that the reduction of draws within the now-extended period would impact Berjaya Sports Toto Bhd’s (BToto) bottom line by about 9% over the four-week period.
He added that there was the possibility of an increase in special draws to offset the tax revenue loss from the reduction in draws, given the extension in the MCO.
The government had last year lowered the number of special draws to eight days from 22 days.
As for Genting Malaysia, Lim said earnings for financial year 2020 (FY20) are expected to be affected with the closure of numerous operations in Malaysia due to the MCO, while operations in the US and UK would be temporarily closed until further notice.
“Given the rise in Covid-19 cases in both countries, we remain uncertain on the duration of the closures, ” he said.
As such, the research house had trimmed FY20 earnings in its previous report, representing a 50% decline year-on-year, to reflect lower visitor arrivals.
“As we had taken a conservative stance in our earnings changes, we had imputed the potential impact of a two-week extension in the MCO in our forecasts, ” he told StarBiz.
RHB Research, meanwhile, maintained its “buy “call on Genting Group, saying that while the pandemic should negatively impact its FY20 performance, earnings would eventually recover when the pandemic stabilised.
The stock, it said, offered a deep value proposition and is a cheaper proxy to the Japanese casino play.
As for Genting Malaysia, it noted that Resorts World Genting (RWG) has been closed for the duration of the MCO.
“While we expect the pandemic to be broadly contained in the first half of 2020, the second half may see only a gradual recovery due to persistent public health concerns, coupled with the cancellation of Visit Malaysia Year 2020.
“Its overseas operations in the US, UK, Egypt and Bahamas should not be spared, given the global contagion, ” it said in a report.