KUALA LUMPUR (June 9): Shares of gaming stocks, particularly Genting Bhd and Genting Malaysia Bhd (GenM), surged today in line with the buying momentum spurred by optimism on the country’s short-term economic recovery plan (PENJANA), and the recovery phase of the movement control order (MCO) starting tomorrow.
However, concern remains on the prospects for the gaming companies as it is still uncertain when they can finally resume their businesses. It is understood the gaming companies are seeking clarification if they can restart their businesses.
UOB Kay Hian research head Vincent Khoo said the current buying is reflective of the global momentum play on ‘economic reopening’ but this play is not as evident or compelling as in the United States.
"The investment community is surprised as the government has allowed pasar malams to reopen, and presumably Genting would be able to better enforce social distancing for non-theme park attractions,” Khoo told theedgemarkets.com.
A longer wait before re-opening would be hugely costly, and will tip the company into losses, he added.
Nonetheless, Khoo has issued “Buy” calls on Genting, GenM and Magnum Bhd, and a “Hold” rating on Berjaya Sports Toto Bhd.
Between the two Genting stocks, Nomura head of equity research Tushar Mohata prefers GenM as it has a bigger dependence on local players. Thus, should international tourism not pick up, GenM would still see local visitation gradually recover when Covid-19 peak is passed, and when the lockdown is lifted. Tushar has a “Buy” call on GenM and a “Neutral” rating on Genting.
With an almost complete shutdown in April and May, Tushar said their second quarter of 2020 (2Q20) earnings are likely to be worse than in 1Q20. “It is not clear when Genting Highlands can open its doors to the public again, along with the need to establish new SOPs (standard operating procedures) for visitors,” Tushar added.
He highlighted that the big negative from the results announcement was the delay of the theme park opening date from 3Q20 to the second half of 2021 due to travel restrictions, weak demand and slow pace of works during the MCO period.
Tushar said Nomura has lowered the core loss assumption for FY20 by 38% to build in better US profitability, but also reduced the profit after tax and minority interests (PATMI) estimates for FY21 and FY22 by 7% and 14% respectively to build in the delay in theme park opening.
That said, with more than 70% of Genting Highlands visitors being locals, Tushar noted some pent-up demand could return as soon as the lockdown is eased, even if international borders remain closed.
Reopening doesn’t mean business-as-usual for Genting
While the reopening of casinos may mean something good, this does not mean that the volume or customer traffic — especially the VIPs — will be back to how it used to be prior to the Covid-19 outbreak, said an analyst, speaking on condition of anonymity.
“Most of the businesses were hit, so I expect VIP volume to drop. And even when the casino opens one day, business may not come back immediately. It will take one or two years,” the analyst said.
“So, if you talk about earnings outlook, it is still negative,” the analyst said, adding he forecasts both Genting and GenM to register losses this year.
In Macau, while casinos were reopened in March, gaming volume for both the months of April and May are down by more than 90%.
The analyst noted that the 1Q20 results were “considered very bad” and were a “negative surprise” for him as he was expecting a positive figure, given that the Covid-19 outbreak was not deemed very serious yet during the Chinese New Year period and that Malaysia had only implemented the MCO on March 18.
He noted that the GenM management had said it was burning RM4 million daily since the closure of its casino.
The risk, the analyst said, is that there could be a second wave of Covid-19 outbreak which will hit consumers’ confidence.
Thus, as the research firm also believes there will be a correction in the market, he advises investors to not trade on the stocks for now, as there will be investment risk in 2Q20, noting that the market should see a rebound in 4Q20.
However, the analyst is bullish on the stocks if it is investing for the long term.
According to Bloomberg data, Genting has a screaming “Buy” call from 12 analysts, while five others had “Sell” recommendations. GenM, on the other hand, has six “Buy” calls, and seven “Hold” and “Sell” calls respectively.
For the number forecast operator Magnum, five out of the six analysts covering the stock have issued a “Buy” recommendation with only one “Sell” call. Berjaya Sports Toto Bhd (BST) has 11 research houses covering the stock, of which six have a “Buy” call, four with a “Hold” call and one with a “Sell” recommendation.
While all four gaming companies’ share prices have declined year-to-date, they have all surged by double-digit since their lows in mid-March. Genting has soared 63.9% from RM2.91 to close at RM4.77 today, while GenM jumped 48% from RM1.83 to settle at RM2.71. Magnum leaped 34.9% to close at RM2.36 and BST rose 12% to RM2.34.