PETALING JAYA: Recovery of the gaming sector is now in full swing as Malaysia enters the endemic phase of Covid-19.
The improving environment bodes well for both casino operators as well as number forecast operators (NFOs) as they are set to post stronger earnings this year.
RHB Research maintained its “overweight” rating on the gaming sector, with Genting Bhd as its top sector pick and Magnum Bhd as its favourite NFO pick.
“As Malaysia and Singapore transition into endemicity, we believe the prospects of the Genting firms and NFO are looking increasingly certain,” the brokerage explained in its report.
RHB Research said Genting remained its top sector pick as the company is set to benefit from Genting Malaysia Bhd’s (GenM) recovery due to a rebound in tourist activity and revenge spending; Singapore’s policy stance to lift most Covid-19 restrictions that should fuel Genting Singapore’s (GenS) recovery; Resorts World Las Vegas’ (RWLV) continued ramp-up and growth; and Genting Plantations Bhd’s exposure to high crude palm oil prices.
In addition, it noted that Genting is trading at an attractive 6.1 times estimated enterprise value to earnings before interest, taxes, depreciation, and amortisation for financial year ending Dec 31, 2023 (FY23) versus regional peers’ average of 11.1 times.
“Foreign investors may also find Genting’s regional and US exposure an attractive alternative to the Macau gaming sector,” RHB Research said.
“We take cues from Resorts World Genting’s stronger-than-expected recovery in the fourth quarter (4Q) of 2021 and expect it to chart even sturdier numbers in FY22.
“While the spike in Covid-D19 cases in Malaysia over February and March may have dampened footfall at the resort, we believe –given Omicron’s lower mortality rate – the impact on footfall and gross gaming revenues is not likely to be as severe as with previous Covid-19 variants.
“Also, the seasonally stronger Lunar New Year gaming volumes should help support GenM’s 1Q22 earnings,” it added.
On NFO’s prospects, RHB Research noted that while ticket sales have been slow in 4Q21, they have continued to show steady improvement, and are currently estimated at around 85% of pre-pandemic levels.
“Given the defensive nature of the NFO business and popularity of the games – as witnessed during the recent wild run of Supreme Toto 6/58 Jackpot prize to a whopping RM98mil – we still expect ticket sales to further recover and normalise by the first half of FY22 as the country transitions towards living with Covid-19,” it explained.
RHB Research favoured Magnum for its FY22-23 estimated yields of 7% to 9%.
“Catalysts include the recovery in NFO outlet footfall, the continued clampdown on illegal gambling activity, and potential monetisation of Magnum’s stake in U Mobile,” it added.