Overview of the Malaysian Gaming Sector
The Malaysian gaming sector has faced a challenging year, with share prices declining on average by 17.2% year-to-date. Despite underperforming the broader market, which saw a 9.6% year-to-date growth, there is optimism for a turnaround in 2025. Several key factors contribute to this outlook, including appealing valuations, earnings growth, and substantial dividend yields. Analysts expect a meaningful recovery in the first half of 2025, driven by increased international tourist influx and robust domestic consumption trends.
Genting Malaysia (GENM)
Genting Malaysia has experienced a significant decline in share price over the past decade, attributed to various unfavourable incidents such as the termination of the 20th Century Fox World outdoor theme park and higher gaming duties. Despite these setbacks, GENM has exceeded pre-pandemic profitability levels for six consecutive quarters, with core EBITDA consistently hovering between RM720m and RM820m. The company’s local operations, particularly Resorts World Genting, have shown steady performance, bolstered by a fully restored operating capacity and increased visitations. The U.S. operations, especially Resorts World New York City, have witnessed substantial growth compared to 2019, with revenue up by 33-47% and EBITDA by 200% since the opening of Hyatt Regency at JFK Airport in 2021. Additionally, its UK operations continue to exceed 2019’s earnings levels.
Recommendation: Maintain BUY with a target price of RM3.50.
Genting Berhad (GENT)
Genting Berhad’s exclusion from the KLCI index has been factored into its share price, with any further weaknesses expected to be limited. The company’s associate, TauRx, remains a potential wild card. TauRx has reported convincing 24-month Phase 3 clinical trial data for its Alzheimer’s HMTM drug, which could significantly impact GENT’s valuation. If TauRx achieves its potential valuation of US\$15 billion, it could translate into RM3.54 per share for GENT’s 20.3% stake, representing over 73% of its current market cap. Additionally, China’s increasing outbound tourists are expected to contribute to growth, with China’s top three airlines recovering international flight capacity to 90-95% of pre-pandemic levels by October 2024.
Recommendation: Maintain BUY with a target price of RM6.13.
RGB Berhad (RGB)
RGB Berhad is well-positioned to capitalize on the booming gaming scene in ASEAN, particularly in the Philippines, where aggressive gaming capacity expansion is underway. The company has secured a significant contract from the Philippine Amusement and Gaming Corporation (PAGCOR) to supply electronic gaming machines and accessories, which is expected to elevate earnings in the fourth quarter of 2024. Additionally, RGB declared a special dividend of 1.2 sen and an interim dividend of 0.6 sen in the third quarter of 2024, resulting in a total dividend yield of 7.6% for the year. With a strong cash position and a robust financial outlook, RGB is expected to achieve lush dividend yields of 10-12% in 2024-25.
Recommendation: Maintain BUY with a target price of RM0.66.
Sports Toto Bhd (SPTOTO) and Magnum Bhd
Both Sports Toto Bhd and Magnum Bhd are anticipated to recover their ticket sales to 90-95% of pre-pandemic levels in 2024-25. Despite facing market share challenges from illegal operators, there is a gradual shift in punters’ habits as authorities clamp down on illegal bookies. If the government permits legal operators to enable online operations, it could provide an additional tailwind for these companies. Both companies are expected to deliver substantial prospective yields of 7-8% for 2024-25 as they recover from the pandemic and political uncertainties. For Magnum, the potential monetization of its stake in U-Mobile in 2025 is a key re-rating catalyst, with the possibility of fetching RM630m or RM0.44/share, which may result in special dividends or reduced borrowings.
Recommendation for Sports Toto: Maintain BUY with a target price of RM1.82.
Recommendation for Magnum: Maintain BUY with a target price of RM1.52.
