Analysts positive on casino operators, see stable future for numbers forecast operators

Analysts positive on casino operators, see stable future for numbers forecast operators

PETALING JAYA - Analysts are positive on the outlook of casino operators and expect a stable outlook for numbers forecast operators (NFOs) this year.

They said Genting Malaysia Bhd's RM5bil (S$1.93) theme park facelift would be a major push factor to Genting Malaysia's earnings when it opened its doors by 2016.

Maybank Investment Bank Research said earnings-wise, 2013 had been "relatively uneventful."

"Going forward, we are bullish only on Genting Malaysia due to its RM5bil expansion/rejuvenation plan. We are less bullish on Genting Bhd due to the uncertain outlook on 52 per cent-owned Genting Singapore. Meanwhile, the two NFOs, Berjaya Sports Toto Bhd (BToto) and Magnum Bhd, face a stable outlook for 2014 but with a substantial negative bias into 2015 due to the implementation of the 6 per cent goods and services tax on April 1, 2015. Only Genting Malaysia is a buy," the research house said.

Last December, Genting Malaysia announced that it was embarking on a 10-year master plan for the development, expansion, enhancement and refurbishment of hotels, infrastructure and a new RM1bil Twentieth Century Fox World theme park at Resorts World Genting.

The Genting Integrated Tourism Plan, totalling RM5bil, also includes a hilltop development of a three-star hotel with about 1,300 rooms next to First World Hotel and a show arena that can seat 10,000 people.

Kenanga Research said given that the corporate exercise story for NFOs was over, while the casino segment was being fired up with a new market in the pipeline, it was now switching its preference to casino operators.

Nevertheless, it said NFOs were still good for yields. It added that the focus for the NFO players now was mainly on dividend income, yielding circa 6 per cent, which is fairly attractive.

"We are now favouring BToto over Magnum, given the stable earnings of the former, while the latter's results tend to be volatile, depending on the luck factor. This is largely thanks to the well-balanced games (4D and lotto games) offered by BToto, with relatively less volatile prize payouts compared with Magnum's more volatile luck factor due to its single 4D game.

"We still expect the NFO players to get their usual 20 special draws in 2014, with 2 per cent-3 per cent annual ticket sales. This means the earnings growth is less exciting, but what attracts investors is their fairly decent dividend income," Kenanga said.

Affin Investment Bank opined that Genting Malaysia's fresh facade would naturally help lift future visitation and revenue growth.

"When the group first expanded accommodation vide the 6,000-room First World Hotel (fully completed in December 2005), the group achieved a three-year earnings compounded annual growth rate (financial year (FY) FY05-FY08) of 18.6 per cent versus 11 per cent for FY02-FY05 (prior to the expansion of room capacity). This suggests a resumption of growth trajectory beyond FY15, we opine," it said.

Affin said its earnings estimates could not capture Genting Malaysia's earnings growth trajectory, as its projection horizon was limited to FY15.

"That said, simulation suggests that an outright 20 per cent lodging expansion and the assumption of a similar quantum gaming floor space expansion could potentially lift FY15 core net profit by approximately 20 per cent. Naturally, the earnings growth would likely be spread over two to three years, as the expansion is progressive."

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