This article first appeared in The Edge Malaysia Weekly on October 16, 2023 - October 22, 2023
THE shares of Genting Bhd and its 49.33%-owned Genting Malaysia Bhd (GenM) have seen some weakness in the past two months following the conclusion of state elections in mid-August.
Genting slipped more than 10% to a low of RM4.07 last week, in contrast to RM4.51 in mid-August, while GenM was down by as much as 9% to a low of RM2.45 from RM2.69 two months ago.
This compares with the benchmark FBM KLCI’s 1.2% decline during the same period.
At a glance, the weak share price performance of Genting and GenM could be attributed to concerns over the possibility of gaming tax hikes in Budget 2024, which was tabled in parliament last Friday. However, as expected, the government did not raise the gaming tax.
The last time casino operators took a hit was in 2018. Under Budget 2019, the government announced a hike in casino duties to 35% from 25% on gross collection. There was also an increase in casino licence fees by an additional RM30 million to RM150 million per annum. At the same time, the machine dealer’s licence was increased from RM10,000 to RM50,000 per annum, while gaming machine duties increased from 20% to 30% on gross collection.
Fundamentally, an analyst with a non-bank-backed research house says the slower-than-expected growth momentum is weighing down on the share prices of Genting and GenM.
“Overall, sentiment on Genting group is not encouraging. Their results are not as good as those of their peers in Macau, which are listed in Hong Kong,” he tells The Edge.
He understands from management that foreign shareholding in Genting and GenM has been declining.
“It is hoped that foreign investors will return to Genting with no hike in the gaming tax,” he says.
Another analyst also believes that the pace of recovery for Genting and GenM has been slow, but the expectation is that it should pick up steam when more Chinese nationals start travelling abroad again. He highlights the key catalyst for GenM is the potential win of a casino licence in New York, the US. The New York State Gaming Commission has resumed the bidding process for three downstate commercial casino licences.
Nonetheless, he says, “For now, Resorts World Genting has to see recovery from locals, be it in the casino segment, or contribution to the non-gaming segment, which they have been emphasising.”
The analyst with the non-bank-backed research house sees better upside in Genting than GenM, on the back of the former’s diversified business model with cheaper valuations. Genting is trading at a forward 12-month price-earnings ratio (PER) of 15.5 times, against GenM’s 27 times.
Regional casino operators are mostly trading at even lower valuations than Genting. MGM China Holdings Ltd has the lowest PER of 12.2 times, followed by Wynn Macau Ltd (13.9 times), Sands China Ltd (14.2 times) and Galaxy Entertainment Group Ltd (16.7 times).
The analyst notes that the competition has always been the ability to draw VIP players, especially those from China.
“Competition is going to intensify in this region. Thailand is considering legalising casino operations, but it’s still premature at this stage,” he says. “We do expect the number of (Chinese) tourists to return to the pre-pandemic levels … I think people [the Chinese] may want to visit places that are nearer to China first.”
In the first half ended June 30, 2023 (1HFY2023), Genting recorded a net profit of RM258.54 million against a net loss of RM259.22 million in the previous corresponding period. It paid a six sen dividend per share during the period under review.
Bloomberg estimates that Genting will make a full-year profit of RM1.04 billion for FY2023, after three years of losses due to the Covid-19 pandemic.
The consensus target price for Genting is RM5.57, suggesting a 34.5% upside potential against its closing price of RM4.14 last Friday.
Of the 14 analysts covering the stock, 12 recommended “buy” and two “hold”. Both CGS-CIMB Research and Hong Leong Investment Bank Research have the highest target price of RM6.95 for Genting.
The consensus target price for GenM is RM3.12, representing a 25.8% upside potential based on the closing price of RM2.48 last Friday. There are 13 “buy” calls on GenM, with four “hold” and one “sell” recommendations.
GenM posted a net profit of RM19.74 million in 1HFY2023 against a net loss of RM137.38 million in the previous corresponding period.
In a Sept 20 note, TA Securities reaffirmed its “overweight” stance on the gaming sector, upgrading GenM to “buy” from “hold” with a target price of RM2.71, as the current valuation offers superior return to its peers, in terms of dividend yield and FY2024 PER. GenM’s dividend yield is higher at 4.9% against Genting’s 2.9%.
The research house’s top pick is Genting with a target price of RM5.35, premised on the group’s diversified business model and cheap valuation compared to its global peers. Apart from leisure and hospitality, Genting also has exposure in plantations, biotechnology, property, energy and management services.
Genting Singapore Ltd, in which Genting has a 52.6% stake, saw its earnings triple to S$276.7 million in 1HFY2023, on the back of a 63% jump in revenue.
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