Malaysian gaming sector tipped to continue strong recovery through 2023
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MALAYSIA’S gaming sector continues to be largely shielded from market volatilities, and is poised to make a strong earnings recovery through 2023, even as the world economy continues on an erratic trajectory amid tightening global monetary policies, says UOB Kay Hian (UOBKH).
The brokerage has given the sector its backing and maintained its “overweight” rating in its report on Tuesday (Oct 4).
Noting that the sector mostly outperformed the FTSE Bursa Malaysia Kuala Lumpur Composite Index during market sell-downs over the past three decades, UOBKH said it believes its sound defensive fundamentals provide a good basis for an expected strong recovery.
In its analysts’ view, the casino sub-sector, in particular, is due to benefit from the restoration of hotel and gaming capacity, given that the Malaysian government lifted most of the Covid-19 pandemic restrictions from the second quarter of 2022.
The analysts project that sub-sector earnings will be on a steady upward trajectory in the second half this year through 2023, especially after Resorts World Genting (RWG) increased its hotel capacity to over 7,600 rooms in light of rising demand.
The analysts of UOBKH highlighted Genting Group – one of the brokerage’s top sector picks – as another beneficiary due to its wholly-owned US subsidiary Resorts World New York City (RWNYC), which aims to bid for a full-fledged gaming licence in downstate New York.
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They added that RWNYC could eventually lift Genting Group’s earnings before interest, taxes, depreciation and amortisation (Ebitda) by US$200 million to US$250 million if it clinches that casino licence, paving the way for a potential US listing for the Genting Group’s US assets.
“We continue to bet on sharp earnings recoveries for the Genting Group, and do not foresee any duty hikes for sin stocks in the upcoming Budget 2023,” they added.
But the analysts recognise that the numbers forecast operators (NFOs) sub-sector is recovering only slowly; Magnum and Sports Toto are having difficulties restoring their pre-pandemic earnings dynamic, due to market share gains made by illegal operators who benefited from the restrictions during the pandemic.
With sales expected to recover to around 90 per cent of the pre-pandemic level next year, the analysts warn of a “sub-optimal recovery” for the sub-sector, and think illegal operators will continue to pose structural challenges for NFOs.
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