Maybank Investment Bank (Maybank) IB Research maintains BUY call for Genting Malaysia Berhad (Genting) with lower DCF-TP of RM2.70 from RM2.77, at the back of service tax hike to 8%.
In its Research note today (Oct 19), it says that the 2 percentage point service tax hike also caused it to trim its FY24E/FY25E earnings
estimates by only 4% to 5%.
Maybank IB estimates however, the long term impact of the hike is not large for the casino operator.
“Longer term, the negative impact may be moderated by multiple remedial measures. Moreover, the slew of tourism friendly measures that were tabled during the same Budget 2024 is positive for Genting.
“Other catalysts are securing a full casino license in New York City and writing back its Mashpee Wampanoag investment,” says Maybank IB.
Prime Minister Datuk Seri Anwar Ibrahim had during the tabling of the budget on Oct 13 said that the government will raise the service tax from 6 to 8% from 1 March 2024 onwards.
Maybank IB says the hike of service tax disclosed in Budget 2024 is essentially a “gaming tax” for Genting.
“One of the taxes that Resorts World Genting (RWG), which traditionally contributes more than 80% to group earnings and pays is the service tax.
“Recall that Genting bears the service tax for gamblers. For Genting, the service tax is currently calculated as (gross gaming revenue minus casino tax) multiply 6/106. Thus, the hike is effectively a ‘gaming tax’ hike for the group”
It said: “The impact to Genting service tax hike is, while noticeable, minimal by our estimation. Moreover, Genting can cut junket commission rates or direct VIP rebates rates, raise hotel room rates, delay salary increments and ration water and energy consumption to moderate the impact of the service tax hike.”
Maybank IB added that Budget 2024 allocations leading up to Visit Malaysia 2026 is also positive, targeting 26.1 million foreign tourists and RM97.6 billion tourism expenditure.
“A total of RM350 million will be set aside to boost tourism promotion and activities in 2024 and the issuance of visas-on-arrival, social visit passes and multiple-entry visas will be eased.
“We hope the current 15% shortfall in Genting visitor arrivals relative to 2019 will be narrowed with more tourists from major source markets like China and India. Pre-COVID, 40-50% of Chinese tourists visit Genting,” it said.
