PETALING JAYA: The earnings recovery of the gaming sector in Malaysia is expected to pick up pace in 2022 on further easing of movement restrictions following a long battle against Covid-19.
As the pandemic recedes, casino operators are set to return to profitability, while number forecast operators (NFOs) could see better ticket sales.
Optimistic about the prospects of the sector, RHB Research maintained its “overweight” stance on gaming.
“We are long-term positive on the sector and believe that gaming stocks will recover strongly once the operating environment normalises,” it said in a report yesterday.
It noted that the dip in the prices of gaming stocks of 8% to 13% since November due to Omicron concerns presented an opportunity for investors to accumulate and position for the earnings recovery play.
RHB Research said despite the risks posed by Omicron, most countries are now better equipped and more nimble in addressing the pandemic due to the experience gained in the past two years.
“As such, we believe the negative impact will be manageable and significantly less severe compared to 2020-2021. Policymakers are unlikely to consider full lockdowns as it will severely impact the economy,” the brokerage said.
“Earnings recovery (for the gaming sector) should pick up pace due to the easing of movement restrictions once the situation stabilises,” it added.
Genting Bhd is its top sector pick for the counter’s attractive valuation at 6.2 times enterprise value-to-earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) ratio, compared with the regional peers’ average of around 13 times.
Genting Bhd is its top sector pick for the counter’s attractive valuation at 6.2 times enterprise value-to-earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) ratio, compared with the regional peers’ average of around 13 times. (File pic: Genting Highlands resorts.)
“Genting’s diversified earnings base should enable it to weather through the uncertainties related to Omicron,” RHB Research said.
“The ramping up of Resorts World Las Vegas’ (RWLV) business could also see further upside to our estimates thus providing a cheaper alternative for investors to position for a recovery play.”
Meanwhile, Magnum Bhd is the brokerage’s preferred NFO pick, as the company is a “sturdy pure-play NFO”.
“The recovery in ticket sales has been encouraging and will to continue to improve as the games remain popular,” RHB Research said.
It added that Magnum’s dividend yield of 7% to 8% for financial years ending Dec 31, 2022 and 2023 remained attractive for yield-seeking investors.
RHB Research said ticket sales of NFOs at present are estimated to be around 80% of pre-pandemic levels.
“Moving into 2022, we expect ticket sales to continue recovering and normalise by the first half of 2022, as demand for number forecast games remains sturdy.
“As for the ban on outlets in Kedah, the impact on NFOs earnings is minimal, at only around 3%. It is unlikely for further bans to happen in other states, given the significant annual tax contributions from the NFO industry (RM2bil to RM3bil per annum),” it added.
On integrated resort and casino operators, RHB Research said both Genting Malaysia Bhd (GenM) and Genting are poised to return to profitability in 2022 as all of their facilities are now opened.
It noted the potential upside to the group’s operations in the United States.
“In New York, we look forward to the possible downstate commercial casino licence as it could potentially lead to further earnings upside for Resorts World New York City.
“For Empire Resorts, the group remains on a positive trajectory to achieve better profitability, further supported by the recent mobile sports betting licence win,” it added.
Over in Las Vegas, RHB Research said RWLV should continue to see better earnings in the subsequent quarters as the group ramps up the business in the newly opened integrated resort.