PETALING JAYA: The gaming sector which went through a tough period last year is better prepared this year and hence will be one of those quickest to make a comeback once recovery starts gaining traction.

       This is largely due to the massive cost rationalisation exercises that the companies have gone through.

       Helped by the ramping up of Covid-19 vaccinations, the sector has the potential to be a strong recovery play, according to analysts.

       In a sector update to clients, Kenanga Research said with the start of phase three of the National Covid-19 Immunisation Programme last week, and targeted full nationwide herd immunity by year-end, business volumes should rebound swiftly backed by pent-up demand post-pandemic and coupled with the re-opening of borders.

       “We assume a three-month lockdown closure for the local gaming industry which will last till end-August before a less stringent movement restriction that allows the players to re-open from September, ” the research house said.

       as its top pick." src="https://apicms.thestar.com.my/uploads/images/2021/07/01/1204504.JPG" onerror="this.src='https://cdn.thestar.com.my/Themes/img/tsol-default-image2017.png'" style="height:426px; width:620px">Meanwhile, Kenanga yesterday reiterated its “overweight” call on the sector, with Genting Bhd as its top pick.

       As such, industry players are expected to register another round of weak results for this year but we believe the impact is anticipated to be less severe than that of 2020 given that companies are more cost efficient having gone through cost rationalisation exercises last year, Kenanga said.

       “More importantly, we are now already at the vaccination stage which is a big step-up from last year.

       “This augurs well for business recovery with gaming operators being key pent-up demand beneficiaries, hence, well positioned as earnings recovery plays, ” the research house added in the report.

       UOB Kay Hian’s research unit said earlier this month that an acceleration of the nation’s vaccination programme would shorten the gaming sector’s consolidation phase and create significant capital appreciation through 2022.

       The research house said gaming companies should eventually regain their revenue resilience and steady streams of cashflow in 2022-2023 that will eventually restore their past dividends.

       Meanwhile, Kenanga yesterday reiterated its “overweight” call on the sector, with Genting Bhd as its top pick.

       “While both companies are expected to benefit from the recovery play as vaccinations move to the advanced stage, we prefer Genting over Genting (M) Bhd for its deep valuations and better news flow, ” it said.

       Additionally, Genting’s earnings have been rather stable as opposed to Genting (M) in the past one year given its geographically diversified earnings while Genting (M) was hit by more movement control order-led closures, it noted.

       Kenanga meanwhile noted that the first half of 2021 had been another bad patch for number forecast operators (NFOs) such as Berjaya Sports Toto Bhd and Magnum Bhd, given the extended movement restrictions and hence closed outlets.

       “Overall, we believe the first half of 2021 (H1’21)will be better than H1’20 as the former had only 14-15 draws cancelled while during MCO 1.0 last year, there were a total of 40 draw cancellations.

       “As the extended movement restrictions are still on-going, this will continue to weigh on earnings until they are lifted.

       “As such, 2021 will still be a tough year.”

       Having said that, even with earnings cuts, NFO operators still offer attractive dividend yields of 3%-5% for this financial year, Kenanga said.