PETALING JAYA: The gaming sector’s earnings is set to rebound in the current quarter till 2022 as the country will start treating Covid-19 as an endemic disease by end of the month.
The sector is unlikely to suffer from duty hikes and higher licensing costs from the upcoming Budget 2022, which would further propel the gaming business to a higher level.
This spells good news for casino and number forecast operators (NFO).
UOB Kay Hian (UOBKH) said the gaming sector is set to generate meaningful capital appreciation from now till 2022 as Malaysia emerges from the pandemic.
In particular, it foresees significant upside for the casino sub-sector as various catalysts emerge, including the imminent opening of a world-class outdoor theme park, the initiation of Asean travel corridors, and vibrancy in the United States market (including New York city’s liberalisation).
The research house, which is maintaining an “overweight” call on the sector, opined that with Resorts World Genting (RWG) having reopened on Sept 30 followed by the lifting of interstate borders restrictions, Genting Group’s earnings would rebound sharply in the fourth quarter of the year through to 2022.
“In Malaysia, the tremendous pent-up demand from local patronage, which accounts for more than 70% of RWG’s visitorships, as well as the long-awaited opening of Genting Skyworlds in November are expected to stoke swift earnings recovery.
“Coupled with excellent recovery in overseas operations, particularly in the US casinos where gaming revenue has surpassed pre-pandemic levels, both Genting Malaysia Bhd and Genting Bhd are the top investment selections to capitalise on this post-pandemic leisure boom,” it noted.
Given the government’s clear intention to restore a semblance of normalcy, UOBKH said it no longer expects strict lockdowns to be re-imposed.
“We expect the resilient NFO sub-sector to stage a steep earnings recovery soon to reach 80% to 85% of pre-pandemic revenue, although the current recovery trend has lagged the previous re-opening phase (in the second half of 2020).
“The recent lifting of the ban on migrant workers as well as potential replacement draws through to 2022 are also expected to further revitalise the NFOs’ earnings recovery to more than 90% of pre-pandemic levels by as early as the first quarter of 2022, which will allow Magnum Bhd and Berjaya Sports Toto Bhd to restore their past dividends that would yield 5.8%-6.7% in 2022,” it added.
UOBKH said the government is unlikely to raise gaming duties or licensing fees on Genting Group and the NFOs in planning for its Budget 2022.
This is because the government would logically need to allow the gaming companies to regain sound financial footing, and as an abrupt rise in gaming duties would render Malaysia regionally uncompetitive and backfire on the need to raise revenue, it added, noting that tourism plays a vital role in the Malaysian economy and contributed about 16% of the country’s gross domestic product in 2019.
“As we roll over our valuations to 2022, the casino sub-sector offers 26% to 32% upside, while the NFO subsector offers 16% to 18% upside respectively,” the research house said.