Gaming sectors near-term prospects remain cloudy but analysts optimistic on recovery
0 month ago, 04-Apr-2021
For GENM, its outdoor theme park, slated to open in mid-2021, would drive its non-gaming revenue while reopening of borders should boost revenue for Genting Singapore; both will benefit Genting eventually, analysts observed. Bernama photo
KUCHING: Malaysias gaming sectors near-term prospects remain dicey but analysts are optimistic on its recovery which could be driven by the lifting of the movement control order (MCO) and possible re-opening of borders, analysts observed.
In its sector update report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) said: While near-term earnings remain dicey especially for the casino operators, the gaming players should benefit from the earning recovery play.
It explained that near-term earnings remains dicey as the upcoming first quarter of 2021 (1Q21) results are expected to be hit by the one-month closure during the MCO 2.0.
However, based on past experience, business volumes should rebound swiftly on pent-up demand post the lifting of MCO.
For Genting Malaysia Bhd (GENM), its outdoor theme park, slated to open in mid-2021, would drive its non-gaming revenue while reopening of borders should boost revenue for Genting Singapore; both will benefit Genting Bhd (Genting) eventually, it said.
As for number forecast operators (NFOs), Kenanga Research highlighted that NFO ticket sales are reverting to 80 to 85 per cent of pre-Covid-19 level post MCO 2.0.
It also pointed out that further enforcement of clamping down the illegal operators should also boost ticket sales.
It noted that in the latest 4Q20 results which saw NFO players registering steady recovery with ticket sales returning to about 80 to 85 per cent of pre-Covid-19 level.
However, like its casino sub-sector peers, NFO players are expecting a weaker 1Q21 results given the one-month hit arising from the MCO 2.0 as NFO outlets in all states except Sarawak were shut down,
We learnt that ticket sales during this period were around 15 per cent of pre-MCO 1.0 level. However, ticket sales have since rebounded strongly to 85 per cent of pre-Covid-19 level which was the same level just before the closure during MCO 2.0.
This shows that ticket sales are fairly resilient as we believe punters are getting used to SOP restrictions while patronising the outlets. As such, we expect ticket sales to revert back to pre-Covid-19 level in 2H21.
Going forth, enforcement on illegal operators remain the key to ticket sales growth while we believe any replacement draws for their 40 cancelled draws during the MCO 1.0 period would provide some earnings kicker.
So far, there is no update on the replacement draws but the government has approved the increase of special draws back to 22 in 2021 from eight in 2020.
Still, these special draws have limited earnings impact as they come with additional tax which crimps profit margin.
Nonetheless, NFOs pay attractive dividends which are supported by their resilient earnings, Kenanga Research said.
All in, the research team retained its overweight rating on the sector based on its recovery play.