DUE to the second movement control order (MCO 2.0), gaming and numbers forecast operators (NFOs) will see hits to their earnings for financial year 2021 (FY21), say financial analysts.
However, the second half of 2021 may see earnings returning to pre-Covid-19 levels once business operations are allowed to resume with the rollout of vaccines.
Maybank Investment Bank (IB) Research opines that due to the high number of new Covid-19 cases in the country, there is a strong probability that NFO outlets in the MCO 2.0-affected states may remain shut for at least 13 weeks, similar to what had happened in the first MCO that started in March 2020.
Assuming NFO outlets in the affected states are shut for 13 weeks, they will forego 46 draws (39 normal draws and seven special draws) in 2021.
Maybank IB Research says more than 50% of NFO outlets in the country will be shut for a long while.
Maybank IB Research has cut its FY21 earnings per share (EPS) estimates for Magnum and BToto by 18% and 26%.
However, the research unit does not expect this disruption to continue annually, given that Covid-19 vaccines will be rolled out soon.
Maybank IB Research has retained its “buy” call on both Magnum and BToto and only cut its discounted cash flow (DCF)-based target prices by only a sen each to RM2.50 and RM2.39, respectively.
“We remain positive on the earnings resilience of NFOs. Before this latest MCO, channel checks informed us that most NFOs’ gross sales/draw had recovered to 85% to 90% of pre-Covid 19 levels, ” says the research unit.
On Monday, it was announced that MCO 2.0 would start from Jan 13 till 26 in six states, namely, Penang, Selangor, the Federal Territories (including Labuan), Melaka, Johor and Sabah.
Meanwhile, six other states (Pahang, Perak, Negri Sembilan Kedah, Terengganu and Kelantan) have been placed under the conditional MCO (CMCO), while Perlis and Sarawak are under the recovery MCO (RMCO) phase.
However, the MCO this time is different from the one implemented in March 2020 as five essential economic sectors have been allowed to operate – manufacturing, construction, services, trade and distribution, and plantations and commodities.
PublicInvest Research says BToto’s FY21 estimated earnings will see a 3% and 6% reduction if the MCO is implemented over a two-week and one-month period, respectively.
It notes that about 60% of BToto’s 680 outlets are located in the MCO-affected areas, while all other outlets in CMCO and RMCO areas will continue to operate as usual.
“We note that this could spill over into the peak period of Chinese New Year where potential loss of ticket sales will be more significant, ” says PublicInvest Research.
Despite the near-term hiccups, the research unit continues to believe that BToto’s business is relatively more resilient compared to casino operators within the gaming sector, as it should recover quicker once all business operations are allowed to resume.
PublicInvest Research has maintained its “outperform” call on BToto, and revised up its target price from RM2.60 to RM2.80.
As for Genting Malaysia Bhd (GenM), (pic below) CGS-CIMB Research says GenM’s Resorts World Genting (RWG) will be allowed to stay open given its location in Pahang (which is placed under the CMCO).
However, due to the nationwide interstate travel ban, any potential visitors will only be from Pahang and, thus, its operations will be as good as shut.
On Monday, RWG issued a notice that it anticipates a decline in the number of visitors following the implementation of the MCO.
“Some of our hotels, facilities, attractions and other offerings will be subjected to revised operating hours, limited availability or temporary closure, ” said RWG.
CGS-CIMB Research has cut GenM’s FY21 estimated core EPS by 51.2% to conservatively factor in a potential extended MCO of two months.
The research unit also estimates that every extra month of MCO, beyond an assumed two-month duration, will reduce GenM’s base case FY21 estimated core net profit by RM144mil (a 52% drop or RM5.1mil per day) and its DCF-based fair value by two sen.
However, RWG’s casino volumes may fully recover to pre-Covid-19 levels in the second half of 2021, aided by tourism incentives and the phased opening of Genting SkyWorlds from mid-2021.
“We see the FY21 estimated core net profit rebounding to RM275mil and quadrupling to RM1.2bil in FY22 as Covid-19 subsides, ” says CGS-CIMB Research.
CGS-CIMB Research has reiterated its “add” call on GenM, with the sum of parts (SOP)-based target price cut by 2% to RM2.90.
Meanwhile, Maybank IB Research opines that the high number of Covid-19 cases could see the MCO in Selangor and Kuala Lumpur being extended to three months, and may cause RWG to forego the Chinese New Year peak season, and also raises doubts if Genting Skyworlds will open in the second half of 2021.
The research unit also notes that RWG’s daily visitor arrivals fell from the recent peak of 50,000 to 15,000 after most states in Peninsular Malaysia went into CMCO that had barred inter-state travel on Nov 9,2020.
Maybank IB Research has cut GenM’s FY21 estimated RWG visitor arrivals to 15 million (from 18 million previously) but maintained the FY22 estimated RWG visitor arrivals at 24 million.
The research unit has also maintained its “hold” call on GenM, but cut the group’s FY21 estimated EPS by 58% and trimmed its SOP-based target price by 2% to RM2.60.
Regarding real estate investment trusts (REITs), Maybank IB Research says with MCO 2.0, there are further downside risks to Malaysian REITs with mall and hotel assets, with the key earnings drag being rental rebates or support, lower turnover rent and lower occupancy.
The research unit estimates that a month of rental income loss would lower the FY21 estimated distribution per unit (DPU) by 2% to 19%.
Pending further updates, Maybank IB Research is keeping its earnings estimates and assumptions on the REITs, with its top buy picks being Axis REIT (target price: RM2.25) and Sentral REIT (formerly MRCB-Quill REIT – target price: RM1.20).
MIDF Research has also maintained its “neutral” call on REITs, and opines that the earnings of industrial REITs, namely, Axis REIT are unlikely to be affected by the MCO as its tenants will still be operating during the period.
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