PETALING JAYA: As investors look ahead to the fourth-quarter 2023 (4Q23) corporate results, the gaming sector is set for a good run as stronger-than-expected consumer confidence boosts holiday and festive sales.
The sector’s undervalued financial matrixes and lush dividend yields also resonate well with investors looking for a “safe haven” with mounting geopolitical tensions creating fresh near-term headwinds for the economy.
In a report, UOB Kay Hian (UOBKH) Research said during the recent Chinese New Year (CNY), it “observed a vibrant festivities-led consumption trend, accelerating tourist visitations and spending surge”.
“For the casino segment, both Resorts World Genting (RWG) and Resorts World Sentosa (RWS) were packed with visitors queuing to enter the casinos and placing bets during the first week of CNY.
“Meanwhile, for the number forecast operators (NFO) segment, staff in a few outlets we visited revealed that ticket sales and punters volume have seen meaningful growth versus the last few months and CNY last year,” the research firm said in a report.
It noted that 4Q23 consumption was boosted by plenty of festivals such as Deepavali, Christmas and the New Year, besides the year-end school holidays.
“For the casino segment, several related matrixes such as flight capacities and international footfall visitations charted sequential improvement.
“As for the NFO segment, ticket sales have improved and steadied at over 90% of the pre-pandemic level in 4Q23.
“We think the sector will see meaningful quarter-on-quarter earnings improvement in the upcoming 4Q23 results announcement.”
It said the Genting Group is a direct beneficiary of the tourism ramp-up in 2024 with foreign tourist arrivals to Malaysia expected to exceed 2019’s level.
“Positive developments of Genting Malaysia Bhd
’s downstate New York’s full-fledged casino licence bid and Genting Bhd’s TauRx Pharmaceuticals’ Alzheimer drugs, which are set to release two years of its Phase Three trial data in March, are also key re-rating catalysts.”
The moratorium for New York’s downstate casino had ended in 2023, and Genting Malaysia’s Resorts World New York City (RWNYC) appeals as one of the frontrunners to secure a full-scale gaming licence.
“We anticipate more newsflow to be released within the first half of 2024 and RWNYC eventually securing a concession which may lift Genting Malaysia’s earnings before interest, taxes, depreciation, and amortisation by US$106mil based on our earlier assumptions,” said UOBKH Research.
On Genting’s 20.33%-owned TauRx, it said positive data from TauRx’s HMTM Phase Three trial may set a milestone towards securing authorities’ approval, which could potentially fetch RM3.45 per share monetisation value for Genting’s stake in TauRx.
The research firm said this was based on assumptions that TauRX was initially eyeing a Nasdaq initial public offering in 2017 with a potential valuation of US$15bil. However, it said it had yet to impute any option value from TauRX.
The research firm said while the gaming sector charted a commendable 6%-22% share price increase year-to-date, current valuations remain attractive as it believes that this is only the beginning phase of a post-pandemic recovery cycle.
Furthermore, the sector offers a lush dividend yield of 4.9%-10.5%, backed by revenue resilience and steady streams of cash flow in 2024, it added.
The research firm maintains a “buy” call on Genting Malaysia and Genting with target prices (TPs) of RM3.50 and RM5.68 a share, respectively. It also keeps the “buy” calls on the two NFO players, namely, Magnum Bhd and Sports Toto Bhd, with TPs of RM1.52 and RM1.72 a share, respectively.
