We are now NEUTRAL on
the sector following our recent downgrade on GENTING as the gaming heavyweight
is facing less-promising prospects for its Singapore casino and plantation
operations. That said, NFO will still be the focus in the next three months due
to the ongoing corporate exercises at MPHB and BJTOTO. As such, we prefer NFO
over casino plays at this juncture. The recent 3QCY12 reporting season revealed
results which met both our expectations as well as that of the market except
for GENM. Meanwhile, GENTING still met our overall expectations despite reporting
disappointing results from its Singapore casino and plantation units, thanks to
its stronger-than-expected GENM numbers. In conclusion, we are now downgrading
our rating for the sector to NEUTRAL from an OVERWEIGHT with MPHB remaining as
our TOP PICK.
3QCY12 met
expectations. Out of the four gaming companies, three reported 3Q12 results
that were fairly in line with our expectations as well as that of the market
except for Genting Malaysia Bhd (“GENM”,
OP; TP: RM4.19), which beat our
estimate on a lower-thanexpected taxation charge. Although Genting
Singapore Plc (“GENS”, NOT RATED) and Genting
Plantation Bhd (“GENP”, UP; TP: RM8.30) reported poorer set of results
earlier, we were surprised that parent company Genting Bhd (“GENTING”, MP; TP: RM9.59) still managed to register
3Q12 results which met expectations. This was largely attributable to a stronger-than-expected
GENM earnings. On the other hand, Multi-purpose Holdings Bhd’s (“MPHB”, OP; TP:
RM4.31) 9M12 results made up 76% and 74% of our full year FY12 estimate and
that of the market consensus
respectively. Meanwhile, Berjaya Sports Toto Bhd (“BJTOTO”, UP; TP:
RM3.88) is likely to announce its 2Q13 results next Tuesday (18 Dec), which
we expect to be free of any surprises.
Better luck for NFO
but not casino. Both the Malaysian and Singaporean casinos reported weaker
top lines QoQ in 3Q12, due to poorer luck and lower business volume. The 3Q12
rolling chip win for RWS fell to 2.8%, the second lowest since the casino’s
inception in Feb 2010, from 3.1% in 2Q12. The market share for rolling chip
volume also dropped to 47% in 3Q12 from 48% previously. In fact, the casino
revenue for GENS hit a new low, putting
the casino revenues of both RWG and RWS closer to it. Elsewhere, Genting UK
turned into a loss at the EBITDA
level after an
impressive 2Q12 as
poor luck factor hit
hard at its
London casinos together with an
overall lower business volume. In New York, RWNYC’s operation remained strong
with its revenue sliding slightly only by 1% while the bottom line inched up 1%
as net win gained 4% over the quarter. Meanwhile, MPHB saw improved luck in
3Q12 as its estimated prize payout ratio dipped slightly to 67.3% from 68.9% in
2Q12, although this was still way higher than that of 62.7% in 3Q11. MPHB’s NFO
sales dropped 1% QoQ but jumped 7% YoY.
Big cut in GENT’s
earnings. Post-results, we saw a
major earnings cut in GENT by 5% for FY12 by the consensus vs. 4% of ours. The
anticipation is that there will be a mainly weaker GENS and plantation earnings
in 4Q12. In addition, we have also trimmed FY13-FY14 estimates by 13% as we
removed the Malaysian IPP contribution after the disposal was completed in Oct 2012
and also lowered our CPO price and GENS earnings projections. For GENM, in
contrary to the consensus, which cut its FY12 earnings by 2%, we instead have
upgraded our estimate by 5% as we lowered our effective tax rate to 23% from
26% previously. We have also upped our FY13-FY14 estimates by 2% after lowering
its effective tax rate to 25% from 26% previously. On the other hand, while we
kept our forecast unchanged for MPHB, we saw the consensus cut FY12 EPS
forecast by 3%.
Downgrade to NEUTRAL.
Following our downgrade of GENTING to a MARKET PERFORM post its 3Q12 results,
we are now downgrading our sector call to NEUTRAL from an OVERWEIGHT
previously. Our gaming portfolio however still shows an upside potential of 9% after
the rating cut in the above heavyweight. In summary, we prefer NFO plays over
casino stocks given the former’s near-term catalyst in the form of ongoing corporate exercises compared
to the latter, which have little price and earnings catalysts in the near term.
Thus, MPHB remains as our TOP PICK for the gaming space for its re-rating
story. For casino operators, we prefer GENM over GENTING given the resilient
Malaysian earnings and as the latter is exposed to the downside of CPO prices
and earnings risk from GENS. BJTOTO meanwhile remains a SELL as the listing of
STM-Trust will likely lead to a de-rating of the stock.
Source: Kenanga
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