Highlights

• The gaming sector in Malaysia and Singapore is anticipated to remain quiet in 2015 from its matured market as well as the lack of any short -term catalyst (s) to excite investors. However, we believe investors with longer-term investment horizon will be rewarded by various expansion plans.

• BToto: Despite healthy topline from the consolidation of H.R Owen, the group’s lottery operation is still showing decline in sale per draw. This is due to maturing market as well as diminishing novelty effect from the group’s 4D Jackpot game.

• GenM: The group will be launching its new hotel by June/July 2015. The group will also introduced Sky Avenue and Sky Plaza, a lifestyle shopping mall, as well as a new cable car. These attractions are expected to complete in 2HFY16, hence, we do not foresee any significant earnings contributions to the group for 2015.

• GenS: Despite the declining trend in rolling chip volume, GenS still managed to outperform the industry thanks to its diversified earnings base. 2015 could be a year for GenS as it is expecting to fully open its new hotel in Jurong, as well as results from its ventures in both South Korea and Japan.

• GenT: We view GenT as the best option for long-term investors to accumulate as it houses all expansion plans and ventures by both GenM and GenS. Furthermore, it has another venture on its own, known as Resorts World Las Vegas (RWLV) which is expected to commence construction works in early-2015 to make time for completion in 2017. Management is also confident in obtaining a casino license for the proposed development.

• We opined that investors should take a longer-term stance for the gaming sector as majority of the initiatives proposed by gaming operators are spread over a longer time horizon, beyond 2015.

Catalysts

• Higher-than-expected visitors’ arrival into Malaysia.

• GenM’s UK development completed earlier-than-expected.

• License to develop full-scale casinos in Upstate New York, Florida and Las Vegas.

• GenS penetrates into international markets (Japan and South Korea).

Risks

• Hike in gaming tax.
• Disappointment on the legalization of full-scale gaming casinos in both New York and Florida.
• Failure in casino license renewal in Malaysia and Singapore.

Rating

OVERWEIGHT

Positives

• (1) Defensive and monopoly industry

Negatives

• (1) Highly regulated industry; and (2) Earningshighly dependable on luck factor

Valuation

• We remain OVERWEIGHT on the sector with top picks according to preference:
• GenT (BUY; TP RM10.64) based on SOP valuations.
• GenS (BUY: TP: SG$1.49) based on FY15 EV/EBITDA multiple of 9.5x.

Source: Hong Leong Investment Bank Research - 7 Jan 2015