PETALING JAYA: The gaming sector is expected to enter the new year on a positive note with several domestic and external catalysts to spur growth.
UOB Kay Hian Research, which maintained an “overweight” call on the sector, said the gaming stocks would likely outperform the FBM KLCI this year on the back of positive developments including generous dividend yields, Genting Malaysia Bhd
’s (GenM) good chances of winning a full-fledged casino licence in downstate New York, and potential progress of Genting Bhd’s TauRx Pharmaceuticals.
“The two major themes for the year include acceleration of foreign visitations and tourism consumption recovery following the conclusion of the pandemic.
“We maintain our view that the sector’s sequential earnings growth delivery and its deep value fundamental qualities present prosperous capital upside for investors,” it said.
The research house remained upbeat that tourism-related investment ideas would continue to be on investors’ radars this year on the back of increasing regional flight frequencies to Malaysia coupled with positive and friendly government policies.
They include the visa-on-arrival improvement and multiple entry visa which were introduced in October under Budget 2024 last year.
In addition, the government’s 30-day visa-free entry for travellers from China and India, coupled with acceleration of regional flight capacities, are expected to boost tourism revenue, given that China and India visitors make up 15% of Malaysia’s 2019 tourist arrivals.
The Malaysia Tourism Promotion Board expects international tourism arrival to surpass 2019’s 26.1 million in 2024.
It said the casino sub-sector would be the direct beneficiary of higher inbound patronage, benefiting GenM and Genting.
Meanwhile, business volume for casino and number forecast operator (NFO) subsector are expected to be stronger in 4Q23 due to the year-end holiday season.
The research house said valuations of these stocks are still affordable despite positive share price action in recent months
“Current valuations remain attractive as we deem that this is only the initial phase of a post-pandemic recovery cycle.
“The sector’s lush dividend yield of 5% to 10% also remains appealing,” the research house explained.
It anticipates the stocks to resume their generous pre-pandemic dividend payout of 5.2% to 10% with Genting and GenM to potentially reinstate 19 sen and 22 sen dividend per share from 2023 onwards, supported by healthy cashflow and low-to-moderate capital expenditure requirements. The NFO companies have also guided their intention to restore pre-Covid-19 dividend payouts of 80% to 90%.
It maintained a “buy” recommendation on GenM and Genting with target prices of RM3.50 and RM5.78 respectively.
The research house also kept its “buy” call on Magnum Bhd and Sports Toto Bhd with target prices of RM1.50 and RM1.78 respectively, given their high prospective dividend yields (9% to 10%) in FY24.
“Meanwhile, still beaten-down small-cap RGB International (retraced about 37% from the recent high) will continue to gain prominence and look forward to achieving another record profit year with the gradual reopening of gaming jurisdictions which were thriving prior to the lockdowns,” it added.
Similarly, HLIB Research is confident that the recovery trajectory will be sustainable for the gaming sector, especially for the casino operators, after delivering steady performance with notable positive surprises in 3Q23.
This is mainly due to the restoration of global flight capacity and the recent visa-free travel pact between China and both Malaysia and Singapore.
“As for the NFOs, its outlook has stabilised and turned more favourable with the political status quo maintained in the six state elections.
“The likelihood of additional store closures in other states has diminished, with potential reallocation of closed outlets to other regions,” it added.
HLIB Research highlighted that GenM is well-positioned as a leading contender for the commercial casino licence in New York due to its current operations in Resorts World NYC and investment in Empire.
This strategic advantage enables GenM to efficiently and swiftly deploy table games as needed.
The research house said its top pick for the sector is Genting as it is strategically positioned to capitalise on the recovery momentum of Genting Singapore and GenM.
It also viewed Genting as currently undervalued, trading at a 16% discount to the value of its holdings in Genting Singapore of RM5.54 per share.
