Gaming - NFO will still be the focus

Casino players are entering the busy year-end festive season while both MPHB and BJToto are in the final stage of their restructuring exercises. We do not expect any surprises from the upcoming 3QCY12 results at the top-line level for companies in the sector. For 4Q12 Strategy, our bet is still on  the NFO players over the casino players, particularly on MPHB, given their exciting restructuring plans. In addition, there are little price and earnings catalysts for GENT and GENM that we can see at the moment. MPHB remains our Top Pick in the gaming space for its decoupling exercise to unlock value. Our sector OVERWEIGHT is maintained. 

NFO outperformed the casino players.  Responding positively to their corporate exercises, the share prices of NFO counters have performed fairly well in the past three months as compared to that of casino operators. This is especially so for Multi-Purpose Holdings Bhd (“MPHB”, OP; TP: RM4.31),  which saw its share price rising by 18% over the period. Meanwhile, Berjaya Sports Toto Bhd’s (“BJToto”, UP; TP: RM3.88) share price has also risen by 4% on expectations that a c.49 sen special dividend is on the cards under its planned listing as a Business Trust on SGX. In contrast, the share prices of casino players namely Genting Bhd (“GENT”, OP, TP: RM10.09) and Genting Malaysia Bhd (“GENM”, OP, TP: RM4.18) have continued to be lackluster on fears over regulation issues in Singapore. GENT’s share price fell below RM9.00 while GENM has lost 6% of its market cap in the past three months.

2QCY12 results fairly in line.  All the four gaming stocks reported earnings, which were within expectations in the recent results reporting season. In general, casino operators, GENT and GENM saw improved top lines QoQ on higher business volumes, which were partly attributable to a better luck factor. GENT’s unit, Genting Singapore plc (NOT RATED) was hit by pre-operating cost while GENM’s London casinos registered impressive numbers. Meanwhile, MPHB saw a QoQ decline in its 2Q12 earnings after the normalization of its CNY effect in 1Q12 coupled with a higher prize payout in 2Q12. BJToto’s core earnings rose QoQ on better lady luck in 1Q13 despite seeing flattish ticket sales.

BJToto remained #1 in NFO, RWG closing on RWS. Both NFOs reported lower ticket sales after a strong CNY effect quarter in 1QCY12. BJToto raked in RM891.9m in ticket sales in 2QCY12 (from RM918.3m in 1QCY12) vs. RM758.6m that of MPHB’s Magnum (from RM839.9m previously) as the former continued to benefit from its 4D Jackpot game. On the casino front, the total casino revenue in Singapore contracted 16% QoQ to USD1.15m while the Malaysian market rose 5% to USD449.5m in the quarter. Interestingly, the revenue gap in 2Q12 between Resorts World Genting (RWG) and Resorts World Sentosa (RWS) reached their closest level at USD449.5m vs. USD451.3m.  

OVERWEIGHT maintained. Our preference is still with NFO players over the  casino operators given the former’s restructuring plans. In addition, In addition, there are little price and earnings catalysts for GENT and GENM that we can see at the moment. With the continued selling pressure on GENS, which contributes half of GENT’s earnings, the company’s current regularity issue with the authority as well as it facing rising stiff competition, we are downgrading our price target on GENT to RM10.09/share from RM11.31/share as we have assigned a higher 20% holding discount to its SOP valuation from 10% previously. In summary, MPHB remains as our Top Pick in the sector for its  rerating story. We are also maintaining OUTPERFORM ratings on GENT and GENM and an UNDERPERFORM on BJToto.

Source: Kenanga