Earnings recovery likely for gaming next year

This will be backed by acceleration of vaccination scheme

PETALING JAYA: The gaming sector in Malaysia is expected to see earnings recovery and business normalisation in 2022, on anticipation that the economy will reopen as the pandemic eases.

Although the extension of the full lockdown has dampened investor sentiment, the still-attractive dividend yield of the sector is expected to limit its downside.

Gaming companies such as casino operators as well as number forecast operators (NFOS) are seen as direct proxies to the upcoming reopening of the economy, taking cues from the recoveries seen in the United States and the United Kingdom after mass dispensation of Covid-19 vaccines there.

The acceleration of the vaccination programme in Malaysia gives hope that the country could potentially achieve herd immunity by the end of this year.

In its report, UOB Kay Hian said an acceleration of the nation’s vaccination programme would shorten the gaming sector’s consolidation phase and create significant capital appreciation through 2022.

“The investment thesis is also sweetened by the NFO sub-sector’s lush prospective dividend yields and the casino sub-sector’s various event catalysts,” the brokerage said.

It maintained “overweight” on the sector, with NFO expected to initially lead the recovery.

“We expect NFO stocks to be quicker than the casino sub-sector to recover during the first phase of the lockdown easing (business recommencement phase), while the casino offers substantial returns which extend through 2022,” UOB Kay Hian said.

Its top picks are Genting Malaysia Bhd (Genm), followed by Genting Bhd, Magnum Bhd and Berjaya Sports Toto Bhd.

According to UOB Kay Hian, Genm appeals for its domestic-centric business model, high prospective dividend yield and Resorts World New York City’s potential to become a full-fledged casino.

It added that the extended lockdown could provide better buying opportunities to buy on weakness for Genm.

It expects Genting’s Resorts World Las Vegas to open this month, while Genm’s outdoor theme park Genting Skyworlds could potentially open in the third quarter of this year.

“The gaming sector’s valuations should continue to partially factor in earnings recovery and business normalisation in 2022,” UOB Kay Hian said.

“Malaysia’s reopening will be gradual, starting with the recommencement of businesses, hopefully by end-june, followed by the reopening of state borders, the partial bilateral travel bubbles and eventually the reopening of the country’s borders,” it added.

The brokerage said gaming companies should eventually regain their revenue resilience and steady streams of cashflow in 2022-2023 that will eventually restore their past dividends.

It said asset-light NFOS should be quicker to resume their generous dividend payouts in the third quarter of 2021, while Genm’s interim dividends would most likely be cut.

Looking forward to 2022, gaming companies now offer lush prospective yields of 3.6%-7.6% in 2022, it said.

“We expect NFO stocks to be quicker than the casino sub-sector to recover during the first phase of the lockdown easing.” UOB Kay Hian