TA expects Budget to be 'non-event' for gaming sector

KUALA LUMPUR: TA Securities Research opines that Budget 2023 will be a non-event for the gaming sector.

The research firm, which has an overweight rating on the gaming sector, said like in Budget 2018 it does not expect any negative measures such as a casino gaming tax hike or reduction in special draws for numbers forecast operators in the coming election budget.

"In our sensitivity analysis, every 1 percentage point increase in gaming tax would lead to 4.5% and 2.5% decline in Genting Malaysia and Genting’s FY23 profit respectively.

"Meanwhile, Sports Toto’s earnings would decline by 8.1% for every 1 percentage point increase in gaming without adjustments made to the prize payout," it said in its sector report.

On the contrary, TA said it expects the populist budget targeting young voters aged between 18 and 21 to lead to generous cash handouts that could bode well for Genting Malaysia's theme park operations.

In its forecast, TA maintained its "hold" recommendation on Genting Malaysia with a target price of RM3.20 notwithstanding a sustained earnings recovery.

It said investor attention could turn to Macau casinos in the event Macau begins easing its travel restrictions.

It noted that Genting group's share prices have outshone those of its Macau peers, the latter of which remain subdued due to Covid-19 containment measures.

The share prices of Genting, Genting Malaysia and Genting Singapore have recovered to pre-pandemic levels while Macau casino operators listed in Hong Kong remain in free fall due to Covid-related operational disruptions.

"For stock-picking, we believe the depressed valuations of Macau competitors would attract significant fund flows in the event that China and Macau start to ease Covid-19 travel restrictions.

"These stocks could be great bargains relative to Genting group even though the latter would benefit from resurgence of visitors from China," said TA.

It reiterated "buy" on Genting and Sports Toto however given the increasing contribution from non-gaming divisions such as plantation, energy and car franchise.