PETALING JAYA: The gaming sector is seen to be on track for recovery in the second half of 2023 (2H23) despite its weak start to the year.
For casino operators, specifically Genting Bhd and Genting Malaysia Bhd (GenM), the increase in the number of tourists is expected to boost income, while for number forecast operators (NFOs), concerns over regulator risks will likely subside post state polls and this should boost sentiment.
With the improved outlook, Hong Leong Investment Bank (HLIB) Research maintained its “overweight” recommendation on the gaming sector.
“Although the gaming sector had a dismal start in 2023, we believe its recovery trajectory remains intact as Malaysia and Singapore’s tourist numbers still have ample legs to go before returning to pre-pandemic levels,” the brokerage said in its report yesterday.
“We expect the restoration of flight capacity and easing airfares around the globe, especially China, to boost leisure tourism and in turn uplift the performance of casino operators, while lingering fear over regulatory risks of NFOs to dissipate in 2H23 should the group’s operation remain status quo post state polls,” it explained.
HLIB Research added that it expected the downside risks for gaming stocks to be contained, given the fact that their share prices had not staged a meaningful recovery despite international borders being largely reopened while international tourism recovery was underway.
It named Genting as its top pick, with a target price of RM6.70, noting that the company was well positioned to ride on the recovery momentum of both Genting Singapore (GenS) and GenM.
Furthermore, it said Genting’s shares were currently deep in value, trading at a discount of 23% to the value of its holdings in GenS.
HLIB Research said it also favoured GenM, pegging its target price at RM3.31.
It noted that although GenM had displayed lacklustre recovery in its bottom line, it anticipated the group’s Resorts World Genting (RWG) operations to stage a promising recovery, as various headwinds hampering its visitation growth fizzle out going into the second half of 2023.
“We expect sequential improvements from GenS and GenM as more leisure travellers from China set foot in Resorts World Sentosa, Singapore, and RWG, which in turn also translates to better bottom-line contribution to Genting,” HLIB Research said.
“We anticipate GenM’s Resorts World New York City in the United States and Resorts World Cruises to remain stable given their gross gaming revenue had already normalised to pre-pandemic level since mid-2022 as their visitations are predominantly domestic-driven and relatively sheltered from cyclical effects of international travel,” it added.
It noted Genting’s Resorts World Las Vegas in the United States would likely continue its growth momentum when summer break begins and major sporting events such as F1 Las Vegas Grand Prix take place in the later part of 2023.
Meanwhile, HLIB Research said investors’ jitter over the policy and regulatory risk due to the impending six state polls, leading to the share price decline of NFOs such as Sports Toto Bhd over the past year, was understandable.
“Nonetheless, should the group’s operation remain status quo post state election, stock price should recover once the policy risk dissipates,” it said.
“Further re-rating catalysts for NFOs include the materialisation of gaming laws amendment which is increasingly likely as the government strives to plug tax revenue leakage to boost the nation’s coffer by curbing illegal NFOs which has contributed to significant tax revenue losses,” the research house added.