KUALA LUMPUR (June 14): Kenanga Research has maintained its "overweight" call on the gaming sector, a major beneficiary of the reopening of the economy and international borders despite the disappointing results reported by all four gaming companies in the first quarter of this year.

The research house said casino operator Genting Malaysia Bhd (outperform; target price [TP]: RM3.35) saw a weaker-than-expected return of foreign tourists to its Resorts World Genting while Genting Bhd (outperform; TP: RM5.66) was weighed down by softer-than-expected crude palm oil prices at its plantation unit.  

However, it said, earnings recovery for Genting Singapore Ltd (not rated) was on track although non-gaming revenue declined 15% owing to elevated airfares during the festive season which impacted visitor volume. Genting Malaysia’s UK, Egypt and North America casino operations continued to post topline revenue growth, it added.

Meanwhile, Kenanga said, both number forecast operators (NFOs) were hit by exceptionally high prize payout ratios but, on a positive note, both saw ticket sales returning to 82%-92% of pre-pandemic levels.

Both NFO players were hit badly in the first quarter, as Sports Toto Bhd’s (not rated) third quarter of financial year 2023 (3QFY2023) estimated prize payout ratio (EPPR) surged sharply to 71.2%, averaging year-to-date nine-month period of FY2023 (9MFY2023) EPPR to 65.4% against Kenanga’s FY2023 assumption of 63% while Magnum Corporation Bhd’s (not rated) 1QFY2023 EPPR jumped to 71.8% against 67% assumption for FY2023.  

Nonetheless NFOs reported strong ticket sales with Sports Toto registering the second highest average ticket sales per draw of RM19.2 million for the past three years in 3QFY2023, recovering to 92% of pre-pandemic level.  

Magnum recovered to 82% of pre-Covid-19 level at an average of RM14.5 million per draw, the highest average ticket sales per draw for the past three years.

"We expect visitor numbers to integrated resorts of both Genting Malaysia and GENS (Genting Singapore) to continue to recover throughout 2023, particularly with China’s reopening early this year,” it said.

In view of this, Kenanga said Genting remains its top pick over Genting Malaysia as Genting is a proxy to the recovery of tourism activities in both Malaysia and Singapore, and has a more diversified earnings base that includes plantation. On the other hand, the research house had earlier ceased coverage on Sports Toto and Magnum.

At time of writing, Genting Malaysia was unchanged at RM2.55, implying a market capitalisation of RM15.1 billion, while Genting was up one sen or 0.24% at RM4.16, valuing the company at RM16.2 billion.