UOBKH Research expects both Genting Bhd’s and Genting Malaysia’s 4Q24 results to improve quarter-on-quarter.
PETALING JAYA: Shares of gaming companies underperformed the FBM KLCI in 2024.
However, UOB Kay Hian (UOBKH) Research expects share prices to gradually recover in the first half of financial year 2025 (1H25).
“We believe the sector’s earnings growth, undervalued financial matrixes and lush dividend yields resonate well with our investment foundations of a potential laggard play.
“We anticipate sequentially stronger earnings in the fourth quarter of financial year 2024 (4Q24) to 1H25, anchored by a meaningful influx of international tourists and robust domestic consumption trend,” the research firm said in its strategy 1H25 strategy report.
This would allow the sector’s share prices to gradually recover in 1H25, albeit at a modest momentum.
According to the research house, tourism consumption trend remains in growth territory with 3Q24 consumer spending growing 4.9% year-on-year (y-o-y).
“Our channel checks also revealed that the business volume for both the casino and number forecast operator (NFO) segments in October to November 2024 remains sturdy.
“For the casino segment, several related matrixes such as flight capacities and international footfall visitations charted sequential improvements.
“As for the NFO segment, ticket sales have improved and steadied at over 90% of the pre-pandemic level.”
It said the sector’s current valuations at minus 1.5 to minus two standard deviation below the average are attractive as it was still in the initial phase of a post-pandemic
“Furthermore, the sector still offers lush dividend yields of 5.1% to 10.5%, backed by resilient revenue and steady streams of cash flow in 2024 to 2025, which is off the pandemic period’s low base.”
UOBKH Research expects both Genting Bhd
’s and Genting Malaysia’s 4Q24 results to improve quarter-on-quarter with Resorts World Genting’s gross gaming revenue (GGR) returning to about 100% of 2019’s level.
In 3Q24, the latter’s GGR stood at 90%.
Additionally, Genting Malaysia stands a good chance of winning a full-fledged casino licence in downstate New York and this may lift earnings before interest, taxes, depreciation, and amortisation by US$106mil.
Over at parent Genting, its investment in TauRx Pharmaceuticals remains a wildcard, said the research firm.
Recall, Genting initially invested US$111.8mil for a 20% stake in TauRx and later increased its investment to US$120.0mil in 2016.
UOBKH Research said TauRx reported convincing 24-month Phase 3 clinical trial data for its Alzheimer’s HMTM drug earlier in March 2024.
“While the group has initiated regulatory engagement in the United Kingdom and the United States for the approval and commercialisation of the product, we acknowledge that the procedure for HMTM securing approval and initiating a commercial rollout may be lengthy with unclear timelines.
“That said, TauRx’s potential valuation of US$15bil may translate into around RM3.54 per share for Genting’s 20.3% stake, which is over 94% of its current market cap.”
As for the NFO segment, the research firm said ticket sales are almost back to pre-pandemic level.
“We reckon that NFOs’ sales will recover to about 95% of pre-pandemic levels in 4Q24 and continue rising.
“While NFOs are still facing market share challenges from illegal operators, there is a gradual shift in punters’ habits that were previously executing bets through illegal bookies as authorities accelerated clampdown efforts.”
“With the government’s efforts to curb illegal bookie operations, NFOs can sustain an annual base revenue growth of 4% to 5% y-o-y after the peaking of the pandemic, and this growth could accelerate if the Gaming Act were to be amended to impose harsh penalties on illegal operators.”
The research firm said both Magnum Bhd and Sports Toto Bhd could gain more attention as they start to deliver lush prospective yields of 9% to 10% for 2025 in tranches upon an earnings recovery.
In the last four years, both stocks were heavily punished by the pandemic and political uncertainties.
For Magnum, a re-rating catalyst is the potential monetisation of its stake in U-Mobile Sdn Bhd as early as 1H25.
“Based on media reports, U-Mobile may be listed via an initial public offering in 1H25 with potential valuations of about RM10bil.
“Upon monetisation, Magnum has the potential to fetch about RM630mil or RM0.44 per share, which is about one-third its current market cap.”
The government recently awarded the country’s second 5G network roll-out to U Mobile.
