Gaming sector hardest hit by lockdowns worldwide, but some values are emerging

KUALA LUMPUR: The gaming sector has been viewed as one of the hardest hit sectors as countries limit travels worldwide.

However, analysts believe that values are emerging as the intense market selldown has pushed gaming companies’ shares to deeply oversold positions and beyond fundamentals as well.

According to the research team at Kenanga Investment Bank Bhd (Kenanga Research), the gaming sector’s players saw their share prices plunging 12 to 30 per cent in three weeks since the beginning of March as the Coronavirus Disease 2019 (Covid-19) turned uncontainable with rapid rise of infected cases around the world.

Lockdowns in cities and countries globally, including the first two-week Movement Control Order (MCO), added selling pressure especially to casino stocks namely Genting Bhd (Genting) and Genting Malaysia Bhd (Genting Malaysia) which saw their share prices plunging to multi-year low of negative three SD below their five-year price to book value (PBV) mean.

“The severe decline of casino stocks started in end-January when Wuhan was locked down while other part of China imposed travelling curbs after the virus turned deadly.

“This bearish sentiment was compounded further by several lockdowns outside China last month as the deadly virus spread rapidly across the world.

“Likewise, the 4-week MCO forced number forecast operators (NFO) such as Berjaya Sports Toto Bhd (BSports) and Magnum Bhd (Magnum) cancelling 12 draws resulting in the share prices of these oncedefensive sub-sector diving to negative 1.5 to negative two SD below their five-year PBV mean,” it said.

“We are cognisant that earnings are expected to be severely hit especially for casino operators due to the four-week closure of casinos.

“However, we believe the aggressive market sell-down has overshot fundamentals as casino stocks were thumped to as low as negative three SD PBV five-year mean while NFOs plunged to near negative two SD PBV five-year mean,” it opined.

Nevertheless, it pointed out that given the depressed market condition, earnings prospect is challenging as well as dicey to forecast for the near term.

“We believe PBV valuation methodology is more appropriate to apply under this current market condition. Last week, after the extension of MCO to April 14, we cut FY20 earnings estimates for Genting

Malaysia, Genting, BSports, Magnum by 39, 13, eight and eight per cent to reflect the business closures, and also economic impact cascading to reduction in FY21E earnings forecasts by 11, seven, one and two per cent, respectively.

“For the upcoming 1QCY29 quarterly results, 1QY20 would not be a usual peak Chinese New Year-quarter as the virusdriven lockdown will take a toll on earnings,” Kenanga Research said.

However, it upgraded its call on the sector to ‘overweight’ from ‘neutral’ given its oversold situation.