Change in fortune

Analysts are expecting a rebound in earnings especially for Genting Malaysia Bhd and a full earnings recovery in 2022.

PETALING JAYA: The gaming sector, which was badly hit by Covid-19 last year, may see a change in its fortune this year from the easing of travel restrictions and the rollout of vaccines worldwide.

Analysts are expecting a rebound in earnings especially for Genting Malaysia Bhd and a full earnings recovery in 2022.

Kenanga Research said the gaming sector’s valuation “remains attractive” as stocks are trading 15% to 26% cheaper than a year ago.

“In all, 2020 is a lost year. However, the recovery, led by casinos reopening, was strong in the third quarter of last year and this should extend into 2021 as borders eventually reopen depending on the vaccine rollout progress.

“We believe numbers forecast operators (NFOs) ticket sales should revert back to pre-MCO levels in H12021 but casino operators would take longer to normalise, possibly only in 2022, ” Kenanga Research said in a report yesterday.

It pointed out that the casino players, namely the Genting group, is expected to lead a swift earnings rebound compared to NFOs where ticket sales are currently at 80%-85% of pre-MCO levels.

“We expect Genting Malaysia to see strong local casino revenue with the opening of its outdoor theme park attracting tourists while Genting Bhd should benefit from the strong Genting Singapore numbers which is fairly sustainable, ” Kenanga said.

Meanwhile, UOB Kay Hian Research reckoned the gaming industry is set to embrace a prosperous 2021, with high hopes and optimism of the efficacies of the various approved Covid-19 vaccines.

“As an indication of a longer-term upside, the casino subsector offers a 36% to 57% upside as valuations roll over to 2022, when Genting Malaysia’s EBITDA will surge back or exceed 2019 levels.

“Meanwhile, the casino sub-sector will benefit from the mass rollout of vaccination programmes throughout the region, declining number of local Covid-19 cases, and also partial reopening of borders or travel bubbles, ” it said in a note to clients.

Nonetheless, UOB said that even without a border reopening, the Genting Group can conceivably generate positive EBITDA to support its generous dividend policies, as witnessed by Resorts World Genting’s (RWG) and Resorts World Sentosa’s (RWS) in their third quarter 2020 gaming revenues, which recovered to 74% and 59% of their respective pre-Covid-19 levels.

“Although RWG’s Q420 revenue has again been impacted by the steep rise in the country’s Covid-19 cases, the outlook should significantly improve in H12021.

“In addition, for RWS, the Singapore government’s travel arrangements with more than 10 neighbouring countries and the well controlled number of Covid-19 cases in the country should lift international visits, ” it said.

On the NFO players, Kenanga Research expected ticket sales to normalise this year despite the conditional movement control order as punters are used to the restrictions to place bets at the outlets.

“We expect ticket sales to revert to pre-movement control order levels in the first half of this year. Going forth, enforcement on illegal operators remains the key to ticket sales growth, ” it said.

“NFO share prices have been fairly stable post the market meltdown in mid-March 2020 as their business volume recovery was faster than the casino operators given that their outlets are spread throughout the country whereas there is only one casino in Genting Highlands, ” Kenanga said.

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