Located 6,000 feet above sea level, Resorts World Genting is Malaysia’s premier integrated resort destination.
PETALING JAYA: The gaming sector is poised for a robust recovery in the second half of 2024 (2H24), driven by increased tourist arrivals and regulatory developments, says Hong Leong Investment Bank Research (HLIB Research).
Maintaining an “overweight” stance on the sector, HLIB Research highlighted several key factors supporting the optimistic outlook.
For casino operators, the research house said the recovery trajectory will be sustainable, underpinned by the restoration of global flight capacity and the visa-free-travel pact between China and both Malaysia and Singapore.
“We anticipate continued earnings recovery for Genting Singapore Ltd and Genting Malaysia Bhd
in 2H24 and beyond – and thus benefiting Genting Bhd – driven by the ongoing rebound in tourist numbers,” it noted.
Genting owns 52.7% of Genting Singapore and 49.5% of Genting Malaysia.
While Malaysia and Singapore had shown resilience as destinations for Chinese travellers in 2023, HLIB Research pointed out that travel volumes are still at 48% and 47% of 2019 levels, respectively, indicating further potential for recovery.
Malaysia aims to achieve foreign-tourist arrivals of 27.3 million in 2024 versus 20.1 million in 2023 and 26.1million in 2019, while Singapore is hoping to see about 15 to 16 million visitors this year against 13.6 million in 2023 and 19.1 million in 2019.
“Specifically, Resorts World Genting and Resorts World Sentosa are poised to benefit from the recovery of Chinese tourist arrivals, a crucial client segment for the gaming industry,” it added.
In addition to the tourism boost, HLIB Research said Genting’s 20.4%-owned associate TauRx Pharmaceuticals Ltd, has shown promising results in its clinical trials for hydromethylthionine mesylate (HMTM), a drug aimed at treating Alzheimer’s disease.
“The new data show that benefit can be maintained over 24 months and highlight the importance of starting HMTM treatment early in the disease process,” said TauRx chief executive officer Claude Wischik earlier this year.
According to HLIB Research, the market for drugs that slow Alzheimer’s progression was devoid of competitors back in 2015.
It said the US Food and Drug Administration (FDA) had recently approved two drugs for treating Alzheimer’s – Leqembi by Biogen and Eisai in July 2023, and Kisunla by company Eli Lilly in July 2024.
With potential FDA approval, TauRx could significantly enhance Genting’s value.
“Assuming three of the drugs capture the addressable market equally, this could imply TauRx is worth US$5bil.
“Genting’s stake could be worth US$1bil or RM1.22 per share, which is approximately 25% of current market cap. To be conservative, we will only consider this valuation in our target price post-FDA approval,” it added.
As for number forecast operators (NFOs), HLIB Research pointed to the recent High Court ruling that the Kedah government’s decision to cease issuing and renewing business licences for gaming operators is unconstitutional, as only the federal government has the authority to enact laws and regulations regarding gambling.
The research house said the decision reduces the risk of similar closures in other states, providing more stability for operators such as Sports Toto Bhd.
Sports Toto’s 19 outlets in Kedah stopped operating since Jan 1, 2023, following the state government’s decision not to renew the gaming licences for the establishments.
NFO outlets in Perlis had been closed since July 2023, for the same regulatory reasons.
“Nevertheless, we are relatively ‘neutral’ regarding the impact of the news on our earnings forecasts, as both Kedah and Perlis accounted for less than 2% of Sports Toto’s revenue.
“However, we take comfort that there will be no additional risk of closures due to state regulatory concerns,” the research outfit said.
Going forward, HLIB Research expects Sports Toto’s NFO segment to normalise in the fourth quarter ended June 30, 2024 (4Q24) after benefiting from seasonally stronger sales in 3Q24.
The research outfit has named Genting as its top pick within the sector, as it believes the group is strategically positioned to capitalise on the recovery momentum of both Genting Singapore and Genting Malaysia, as well as the potential value-add from TauRx Pharmaceutical once HMTM receives FDA approval.
