KUALA LUMPUR (June 9): RHB Investment Bank Research has maintained its “overweight” rating on the gaming sector and said that while casino operators’ earnings generally underperformed estimates due to a slower-than-expected rebound, their recovery continues to progress, as countries transition towards living with Covid-19.

In a note on Thursday (June 9), the research house said the recovery in number forecast operators’ (NFOs) ticket sales seems to be slower than anticipated, but the worst should be over – given the end of movement restrictions and the resumption of economic activity.

RHB said Genting Malaysia Bhd’s (GenM) numbers fell short of expectations mainly due to lower-than-expected 1Q22 revenue, amid a high number of Covid-19 cases and the hold percentage from Malaysia.

It said Genting Bhd also disappointed, as GenM and its power segment’s underperformance outweighed the outperformance of Genting Plantations Bhd (MP, Sell, TP: RM7.35) and its oil and gas segments.

RHB said Magnum Bhd missed expectations, as its revenue fell short, at 20% of the research house's full-year forecast.

“The disappointing earnings were mainly due to: i) Softer-than-expected ticket sales, and ii) higher-than-expected prize payouts,” it said.

Meanwhile, it said Sports Toto Bhd outperformed, mainly due to the stronger-than-expected contribution from its UK motor dealership segment.

“This, in turn, was due to stronger-than-expected used car profit margins, fuelled by strong demand and tight supply,” it said.

“Post results, we trimmed GenM’s FY22-24F earnings by 10-3%, Genting’s by 13-2%, and Magnum’s by 30-15%.

“We lifted Sports Toto’s FY22 earnings by 3% on stronger motor sales and margins.

“Despite a disappointing 1Q22, we maintain our 'overweight' rating on the sector, as the casinos’ recovery is still on track and they should see better future earnings, given the reopening of borders and resumption of tourism activities in key markets in 2Q22,” it said.

RHB said the NFOs’ ticket sales recovery may be slower than expected, as some punters are likely financially worse off and may continue relying on illegal operators. Nevertheless, the NFOs’ earnings and dividends should continue to recover in the subsequent quarters along with the economic recovery.