PETALING JAYA: Casinos in Malaysia and Singapore are expected to enjoy a buoyant 2023, with the return of China tourists, following the full borders reopening of the world’s second-largest economy.
This is set to benefit Genting Bhd, the largest casino conglomerate in South-East Asia, with interests in power, plantations, property and oil and gas sectors.
Through its 49%-owned Genting Malaysia Bhd (GenM) and 53%-owned Genting Singapore plc (GenS), which operates Resorts World Genting (RWG) and Resorts World Sentosa (RWS) respectively, Genting is expected to see strong earnings recovery this year on higher contributions from the two subsidiaries.
According to Maybank Investment Bank Research’s (Maybank IB) estimates, GenM and GenS could contribute about RM1.2bil and RM1.1bil, respectively, to Genting’s earnings this year.
The brokerage also expects GenM and GenS to contribute 33% and 38%, respectively, to its sum-of-parts-based target price for Genting.
“Genting is a good proxy to GenM and GenS’ earnings recovery,” Maybank IB pointed out in its report.
It maintained “buy” on Genting, with a higher target price of RM5.64 a share, as compared with RM5.59 previously.
The research house also maintained its “buy” call on GenM, with just a slightly target price of RM3.04 a share, as compared with RM3.03 previously.
As for GenS, it recommended “hold”, with a higher target price of S$0.94 (RM3.04) a share, as compared with S$0.88 (RM2.84) previously.
Maybank IB said there would be three themes that would shape the casino sector in 2023.
Besides the return of China visitors, which would benefit GenS in particular, the downstate casino licence tender in New York in the United States would also be an important theme, with GenM seen to be in a good position to win one.
The third theme would be the potential legalisation of integrated resorts in Thailand, which would pose a threat to GenS’ RWS expansion plans if the liberalisation of the Thai integrated resort materialised.
The overall outlook for casino stocks remained “positive”, regardless of the challenges ahead, Maybank IB said.
“As RWG makes available the last 2,500 rooms (total: 10,500 rooms) this year, we expect GenM’s earnings to continue improving. Hotel guests spend way more than day trippers due to longer lengths of stay and play,” it explained.
“We expect RWG to welcome 26.2 million visitors in 2023 (2019: 24.2 million, 2022: 22 million), thanks to Genting SkyWorlds theme park.
“RWG’s margins also ought to expand to 34%-35% from the estimated 31% in 2022, as it employs more automation and fewer staff,” it added.
Maybank IB said if GenM, through its unit Resorts World New York City, bagged a New York downstate casino licence this year, the target price for GenM could be raised by 53 sen per share per licence.
As for GenS, the research house had previously assumed that the mass market gross gaming revenue (GGR) of RWS in 2023 and 2024 to stabilise at 90% of the level in 2019.
It now assumes that RWS’ mass market GGR to recover to 100% of 2019 levels.
The brokerage added that while Resorts World Las Vegas would continue to lag, it would pose no impediment to the recovery of both GenM and GenS, which would drive Genting’s medium-term income.
Maybank IB projects Genting’s earnings before interest, tax, depreciation and amortisation (ebitda) to rebound 97% year-on-year (y-o-y) for the financial year ended Dec 31, 2022 (FY22), as RWG operated on a full-year basis and foreign gamblers return to RWS.
The brokerage forecast Genting’s ebitda to grow by a more gradual 28% y-o-y for FY23 as more visitors return to RWG and RWS post-Covid-19, and to increase 5% y-o-y in FY24 as China mass market gamblers return to RWS.
“We expect its balance sheet to remain in net debt as Genting has been more progressive in paying dividends,” Maybank IB said.