Brokers’ take: UOBKH says Asean, Macau gaming stocks yet to fully price in return of Chinese tourists
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Michelle Zhu
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THE ongoing rally among Asean and Macau stocks will have more legs upon the return of Chinese tourists, with Genting’s listed companies expected to dole out “generous” final quarter dividends.
This is according to UOB Kay Hian (UOBKH), which is “overweight” on both Singapore and Malaysia’s gaming sectors. The brokerage however remains “market weight” on Macau gaming stocks as it said valuations have partially priced in recoveries through 2024.
In a report on Friday (Jan 6), analysts highlighted Genting Singapore as their top sector “buy” pick among the region due to its highest reliance on Chinese patronage, which accounted for an estimated 20 per cent of the country’s pre-pandemic gaming revenue.
Analysts were also positive on the casino operator’s 2023 earnings recovery prospects and strong balance sheet. The stock’s target price has been raised to S$1.15 from S$1.08 to reflect a “conservative” 9.3 times FY2023 enterprise value/Ebitda (earnings before interest, taxes, depreciation and amortisation) multiple which is half a standard deviation to the stock’s mean.
Singapore’s gaming sector is seen as the largest beneficiary from the reopening of China’s borders, as Chinese tourists are estimated to historically make up about 19 to 20 per cent of Singapore’s tourist arrivals before the pandemic, as opposed to 10 to 15 per cent of foreign visitors to Malaysia.
UOBKH forecast that China tourists contributed to 20 per cent of Singapore’s gross gaming revenue (GGR) and said the market should sustain its positive sentiments towards Singapore’s gaming sector in 2023.
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This comes as Singapore’s meaningful core profitability recovery of its gaming sector “promises defensiveness amid current market volatility”, added its analysts.
The brokerage also recommended to “buy” Sands China on weakness. It has a target price of HK$31.50 on the Macau-listed stock.
While gaming companies in Macau are expected to post the strongest GGR and Ebitda recoveries through 2023 to 2025, UOBKH noted that a significant rebound in their valuations suggest near-term consolidation.
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This could be because the jump-starting of visitation in Macau during its reopening process, along with the expected GGR recoveries in the coming months “may not necessarily be a smooth upswing”, said the analysts.
Although UOBKH sees Malaysian gaming listed companies as “conspicuous laggards” compared to their regional peers, it said the sector remains a major direct proxy for the post-pandemic-peak tourism boom. Continued recovery in tourism and domestic consumption should lead Malaysia’s gaming sector to deliver sequentially stronger earnings in H1 2023, said the analysts.
They prefer Genting Malaysia over Genting Berhad for the former’s higher dividend yield. Both stocks have been rated “buy” with the respective target prices of RM2.77 and RM4.68.
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