The 2 percent service tax rate hike which was announced by Prime Minister Datuk Seri Anwar Ibrahim during Budget 2024, caused Maybank IB to trim its FY24E/FY25E earnings estimates for Genting Malaysia by only 4%/5%.
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 GENM. Other catalysts are securing a full casino license in New York City and writing back its Mashpee Wampanoag investment (link)
One of the taxes that Resorts World Genting, which traditionally contributes >80% to group earnings, pays is the service tax. Recall that RWG bears the service tax for gamblers. For RWG, the service tax is currently calculated as (gross gaming revenue – casino tax) X 6/106. Thus, the increase in service tax rate by 2% is effectively a ‘gaming tax’ hike for RWG. -ve impact is not large and there are remedies.
Employing the formula above, the house trimmed its earnings estimates by 4%/5% (incorporating the service tax hike effective 1 Mar 2024) and DCF-TP by 3% to MYR2.70. Thus, the impact to GENM from the service tax hike is, while noticeable, minimal by estimation. Moreover, RWG 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.
Initiatives in the lead up to VMY 2026 also +ve Budget 2024 also designated 2026 as a Visit Malaysia Year, targeting
26.1m foreign tourists and MYR97.6b tourism expenditure. MYR350m 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. Maybank IB hopes the current 15% shortfall in RWG 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 RWG
