UOB Kay Hian, bullish on gaming, names Genting Malaysia as its top pick

MALAYSIA'S casino sector is charging ahead on vaccine-fuelled hopes for borders to reopen, said UOB Kay Hian (UOBKH), which is maintaining an "overweight" reading on the gaming sector, and has named Genting Malaysia as its top pick.

In a research note on Thursday, analysts Vincent Khoo and Jack Goh said Malaysia's casino sector - and particularly, Genting Malaysia - was well positioned to thrive in post-pandemic recovery mode.

They wrote: "We are confident in the Genting Group's earnings recovery and business normalisation in 2022. As an indication of the sector's longer-term upside, the upside to the current prices could be 16 to 45 per cent based on our 2022 Ebitda forecast and mean valuation.

"The gaming sector is a major direct beneficiary of the Covid-19 vaccine dispensation and reopening of the economy. With hopes riding high on the WHO (World Health Organization)-endorsed Covid-19 vaccines (with the efficacy extending to the recent virus mutations), and on the global dispensation of the vaccines in 2021, valuations will partially factor in the gaming sector's return to pre-pandemic earnings dynamics."

The first shipment of Pfizer-BioNTech vaccines arrived in Malaysia on Feb 21; more vaccines, including those of AstraZeneca, Sinovac, CanSino and Sputnik V, are expected in the coming months. Malaysia's government aims to inoculate 80 per cent of its 32-million population by February 2022.

Until then, as interstate travel is gradually restored, UOBKH expects the gaming sector to benefit from local tourists - who have historically accounted for between 50 to 60 per cent of Genting Malaysia's gaming revenue, the analysts noted.

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They noted that across the Causeway, Genting Singapore's H2 2020 results revealed its gaming revenue had recovered to nearly two-thirds of pre-pandemic levels, mostly driven by local patrons.

Genting Malaysia plans to open its Genting SkyWorlds, a movie-inspired theme park in Genting Highlands, in Q2 2021. This will be followed by Genting Berhad's summer opening of Resorts World Las Vegas (RWLV), an Asian-themed luxury resort on the Las Vegas strip.  

The analysts acknowledged: "The payback periods may not be exciting for both projects, considering our estimated annual Ebitda of RM256.2 million for SkyWorlds (12-13 years' payback period), and RWLV's hefty establishment price tag of US$4.3 billion in the already-intensely-competitive Las Vegas (US) market.

"Nevertheless, these projects positively elevate Genting Group's efforts in building an inspirational brand and entrenching its standing as a world-class integrated resorts operator. SkyWorlds, which features potentially award-winning rides, should also help lift the casino patronage of Resorts World Genting (RWG)."

Separately, a Colliers International report last month foresaw recovery for the land-based casino industry across Asian destinations in 2021, mostly from Q3. Cambodia and Macau are tipped to lead the way.