KUALA LUMPUR: The upcoming Budget 2023 may not offer any exciting incentives for the gaming sector, according to TA Research.
In a report yesterday, the research house said the tabling of Budget 2023, which is less than one month away, will likely be seen as an “election budget” ahead of the upcoming general election by the market.
“It is sensible that the market would tend to speculate and price in a slew of goodies in this populist budget.
“For the gaming sector, the good news has always been ‘no bad news’ in terms of gaming tax hikes for casinos and number forecasting operators (NFOs), which would dent future profitability and dividend.”
However, TA Research said it is not going to “hold its breath” that the “sin” sector (alcohol, tobacco and gaming) would receive any kind of financial support from the government’s budgetary announcement.
“We believe Budget 2023 will be a non-event for the gaming sector after recalling the national budgets for the past five years.
“As we also believe this populist budget will be targeting young voters aged between 18 and 21, there could be generous cash handouts to the young population, which would bode well for Genting Malaysia Bhd
’s theme park operations.”
According to the research house’ sensitivity analysis, every one percentage point increase in gaming tax would lead to 4.5% and 2.5% decline in Genting Malaysia and Genting Bhd’s financial year 2023 profit, respectively.
Sports Toto Bhd’s earnings would decline by 8.1% for every one percentage point increase in gaming without adjustments made to the prize payout, it noted.
As far as share price performance is concerned, TA Research said Genting group has outshined its peers in Macau, which remained in bad shape due to strict Covid-19 containment measures.
“In contrast, Macau casino operators listed in Hong Kong suffered free fall with mounting losses caused by Covid-19-led operational disruptions.”
For stock-picking, the research house believes 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 the Genting group.
“In view of this, we reiterate our ‘hold’ recommendation on Genting Malaysia (target price or TP of RM3.20) despite sustained earnings recovery.
“We maintain ‘buy’ on Genting (TP: RM6.13) and Sports Toto (TP: RM2.20) given the increasing contributions from non-gaming divisions, namely plantation, energy and its car franchise,” TA Research added.
It maintained its “overweight” call on the local gaming sector.
