UOB Kay Hian (UOBKH) believes the Genting Group's gaming stocks in South-east Asia are likely to re-rate with business normalisation in 2022, as countries move towards an endemic Covid-19 phase.

In a research note on Wednesday (Feb 23), UOBKH maintained an "overweight" call for the regional gaming sector with the casino and integrated resorts group's three Asean-listed stocks "set for a winning streak", as the tourism-related sector is poised to benefit from countries reopening their borders.

UOBKH sees "sharp dividend recoveries" by 2023 for the group, combined with low-to-moderate capital expenditure requirements relative to balance sheet strength and cash flow generations.

This suggests that all 3 Genting companies - Genting Malaysia, Genting Singapore and Genting Berhad - should match their respective pre-pandemic dividends with yields of 6.7 per cent, 4.7 per cent and 4.4 per cent respectively, said UOBKH.

Its analysts also observed that valuations for Asean-listed stocks in the gaming sector remain overly depressed, as they trade well below their 5-year mean EV/Ebitda ratio (enterprise value to earnings before interest, taxes, depreciation, and amortisation ratio) based on their 2023 earnings forecasts, compared to the Macau gaming companies that trade close to their mean valuations.

They had used 2023 forecasts as they believe the 2022 earnings trajectory still remains subject to the timing of border reopenings.

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In particular, the Malaysian gaming sector, which is less dependent on China VIP gamers than Singapore and Macau, enjoys a number of re-rating catalysts, such as Genting Malaysia's SkyWorld's outdoor theme park opening and Malaysia's plan to reopen its borders in March, the analysts said.

It can also leverage an eventual earnings recovery, as gross gaming revenue should grow 100-110 per cent, while suffering minimal impact from Malaysia's one-off prosperity tax, they added.

Meanwhile, UOBKH forecasts Singapore's gaming sector to see a growth of 45-50 per cent in 2022 and recover around 70-75 per cent of its pre-pandemic gross gaming revenue level, as the Republic relaxes its standard operating procedures and pilots quarantine free-travel lanes.

"We expect cash-flushed Genting Singapore to focus on capital management, after abandoning its bid for the elusive Japanese gaming concession," the brokerage noted, referring to Genting Singapore shuttering its Japanese subsidiary after Yokohama cancelled its plans for an integrated resort in September 2021.

The brokerage nonetheless believes that Genting Singapore's depressed valuation, which is trading at below 1.2 standard deviations to its mean EV/Ebitda, underrates its ability to significantly capital manage.

Genting Singapore earlier on Feb 17 reported a net profit fall of 49 per cent for H2 FY2021, due to lower visitorship as community Covid-19 cases rose, and declared a final dividend of S$0.01 per share. UOBKH called this dividend amount "modest", and sees Genting Berhad and Genting Malaysia declaring similarly "modest" dividends for the same period.

Both Malaysia and Singapore's gaming sectors are expected to do better than Macau's, which received a "market weight" rating from UOBKH and is likely to recover 34-50 per cent of gross gaming revenue in 2022-2023.

UOBKH's top picks for the regional gaming sector are Genting Malaysia, Genting Singapore and Sands China, the latter of which is a subsidiary of Las Vegas Sands Corp and manages integrated resorts and casinos in Macau.

Shares of Genting Singapore were trading at S$0.775, down 0.6 per cent or S$0.005, as at 4.22 pm on Wednesday.

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