RHB Research: The recent dip in sector share prices due to Omicron concerns presents an opportunity for investors to accumulate, as we do not expect the impact to be as severe as in 2020-2021. Earnings recovery should pick up pace due to the easing of movement restrictions once the situation stabilises. GENT is our sector pick for its attractive 6.2x FY22F EV/EBITDA valuation, providing a cheaper alternative for investors to position for a recovery play.
Both Genting Malaysia and GENT are poised to return to profitability in 2022, as all of their facilities are now open. While Omicron poses a downside risk to the earnings recovery, we believe the impact may not be as severe as it was in 2020-2021, when strict lockdown measures were implemented. Many countries are now better equipped and nimble in handling the pandemic. Coupled with the massive cost rationalisation efforts undertaken previously by the casino operators, these should partially cushion the impact. Both the casino operators will resume recovering after the COVID-19 situation stabilises.
Potential upside to US operations. In New York, we look forward to the possible downstate commercial casino license as it could potentially lead to further earnings upside for Resorts World New York City (RWNYC). For Empire Resorts, the group remains on a positive trajectory to achieving better profitability, further supported by the recent mobile sports betting license win. Over in Las Vegas, Resorts World Las Vegas (RWLV) should continue to see better earnings in the subsequent quarters, as the group ramps up the business in the newly opened integrated resort (IR).
Resilient number forecasting operator (NFO) business. Ticket sales are currently estimated to be at c.80% of pre-pandemic levels. Moving into 2022, we expect ticket sales to continue recovering and normalising by 1H22,
as demand for number forecast games remains sturdy. As for the ban on outlets in Kedah, the impact on NFOs earnings is minimal, at only c.3%. It is unlikely for further bans to happen in other states, given the significant annual tax contributions from the NFO industry (c.MYR2-3bn pa).
Top Pick: GENT. We like the stock for its attractive 6.2x FY22F EV/EBITDA vs the regional peer average of c.13x – presenting investors with a cheaper alternative to position for the tourism recovery play. Furthermore, GENT’s diversified earnings base should enable it to weather through the uncertainties related to Omicron. The ramping up of RWLV’s business could also see further upside to our estimates.
Magnum is the preferred NFO pick, as it is a sturdy pure-play NFO. The recovery in ticket sales has been encouraging and will continue to improve as the games remain popular. Magnum’s FY22-23F dividend yield
of c.7-8% is attractive for yield-seeking investors. Further upside to our forecasts includes the potential introduction of stricter gambling laws.
Key risks: Fluctuations in luck factor, a prolonged full lockdown, and changes in government policies
