Significant capital appreciation observed for the gaming sector with a casino sub-sector offering an increase of 26% to 32% in 2022, according to UOB Kay Hian
KUALA LUMPUR (October 26): The games industry is expected to generate significant capital appreciation by 2022 as Malaysia emerges from the Covid-19 pandemic, UOB Kay Hian Research said on Tuesday October 26.
“As we postpone our valuations until 2022, the Casinos sub-sector offers a 26% to 32% increase, while the Number Prediction Operators (NFO) sub-sector offers a 16% increase to 18%, ”analysts Vincent Khoo and Jack. Goh said in a note.
They forecast a significant rise for the casino sub-sector due to the emergence of various catalysts including the imminent opening of a world-class outdoor theme park, the launch of ASEAN Travel Corridors and the dynamism of the US market (including the liberalization of New York City).
They maintained an “overweight” on the sector, with Genting Malaysia Bhd (GenM) (target price [TP]: RM4) and Genting Bhd (TP: RM6.77) as their top picks.
With the reopening of Resorts World Genting (RWG) on September 30, followed by the lifting of interstate border restrictions, Khoo and Goh expect Genting Group profits to rebound strongly for the fourth quarter of 2021 (4Q21) and 2022. .
In Malaysia, the huge pent-up demand for local sponsorship, which accounts for over 70% of RWG visitors, along with the long-awaited opening of Genting SkyWorlds in November should fuel a rapid recovery in profits, they said.
They also noted that Malaysia is currently considering a trial reopening of the border for international tourists in November after a nearly two-year shutdown to revive the tourism industry, which would give the sub-sector a boost. casinos.
Foreign sponsorship, particularly from ASEAN countries, accounted for around 25% of RWG’s pre-pandemic attendance.
Analysts’ forecasts have modeled a full reopening of intra-regional borders from the second half of 2022 (2H22).
“In addition to an excellent recovery in overseas operations, particularly US casinos where gaming revenues have exceeded pre-pandemic levels, GenM and Genting are the primary investment choices to capitalize on the boom. post-pandemic recreation, ”they said.
As for the NFO sub-sector, given the government’s clear desire to restore some semblance of normalcy, analysts no longer expect strict containment to be reimposed.
“We expect the resilient NFO sub-sector to stage a strong profit recovery soon to reach 80% to 85% of pre-pandemic revenue, although the current recovery trend has lagged behind. in the previous reopening phase. [in 2H20],” they said.
According to them, the recent lifting of the ban on migrant workers as well as potential replacement drawdowns until 2022 should also further revitalize the recovery of NFO income to more than 90% of pre-pandemic levels as early as 1Q22, which would allow Magnum Bhd and Berjaya Sports Toto Bhd (BToto) to restore their past dividends, yielding 5.8% to 6.7% for 2022.
However, UOB Kay Hian prefers Magnum (TP: RM 2.45) to BToto (TP: RM 2.46) for exposure to the NFO sub-sector, given the former’s ‘hidden value’ of a stake of 6 , 3% in U Mobile (book value: 270 million RM or 7% of its market capitalization), which could be listed by 2022.
Meanwhile, Khoo and Goh felt that the government is unlikely to increase gaming fees or licensing fees against the Genting Group and the NFOs when planning for the 2022 budget, as the government should logically allow gaming companies to regain a healthy financial footing, while a sharp increase in gaming rights would make Malaysia regionally uncompetitive and backfire on the need to increase revenues.
“Note that tourism plays a vital role in the Malaysian economy and contributed around 16% of the country’s gross domestic product in 2019,” they said.