Analysts: Higher casino duties a negative surprise
PETALING JAYA: Several analysts have cut their earnings forecast on Genting Bhd and Genting Malaysia Bhd following the government’s decision to increase casino tax.
“It was a negative surprise to us as we were expecting a smaller casino duty hike,” said CIMB research in a report.
The research house has reduced its earnings estimate on Genting Malaysia by 24.9% to 29.8% for its FY19-20 forecast.
The government has raised casino duties to 35% from 25% on gross gaming revenue and gaming machine duties to 30% from 20% on gross collection.
The Finance Ministry has also increased the annual casino licence fees by RM30mil to RM150mil and machine dealer’s licence to RM50,000 from RM10,000 a year.
According to Finance Minister Lim Guan Eng, taxes, fees and levies on the industry have not been raised since 2005.
Shares in Genting and Genting Malaysia were hit on Monday following the announcement.
Shares in Genting Malaysia plunge 20.5% to close at RM3.614, while its parent company Genting fell 6.4% to RM6.74 a piece.
UOB Kay Hian Malaysia Research has downgraded Genting Malaysia to a “sell” call and “hold” on Genting following earnings adjustment.
“Budget 2019 delivered a shockingly drastic hike in casino gaming duty that renders the Malaysian gaming jurisdiction, once a regional powerhouse and gaming tax reference for the formation of the region’s mushrooming integrated casino and resort (IRCs), to be the most highly taxed IRC (exceeding Macau’s),” it said in a note to clients.
It pointed out that collectively, the various duties added up to about 41% of gross gaming revenue (GGR) for GEN Malaysia, exceeding Macau’s 39% and Macau casino operators are not subject to corporate taxes.
UOB Kay Hian pointed out that Malaysia’s regional competitiveness came into question should the new gaming tax rate also apply to the VIP segment, which is subject to intense regional competition and commands a much lower margin than the mass market segment.
RHB Research, which is more bullish on Genting, maintained its “buy” call on the counter due to its exposure beyond gaming. Genting owned 49.3% stake in Genting Malaysia.
“The opening of the 20th Century Fox theme park remains the major re-rating catalyst for the stock. However, upside is limited, with the recent budget developments. On Genting Singapore, we like its upcoming reinvestment plans into Resorts World Sentosa and its exposure to the bidding for the Japanese casino licence, with more details to be announced in its upcoming quarterly results,” it said.
Additionally, CIMB also expected that the impact on Genting’s earnings would be lower as the group was a diversified entity. It said Genting’s share price was down 21% on a year-to-date basis, reflecting investors’ expectations that casino duties would be increased.