Highlights

• After a gloomy year in 2015 across the region, the gaming sector continues to search for optimism in year 2016. A matured market by its nature, we foresee the industry to start a new normalization after series of disappointing results in 2015 and change of industry landscape. However, with various regional expansion plans only contributing to the earnings in the next few years, we remain NEUTRAL on the gaming sector.
• GenS: We believe that GenS may have bottomed in 2015 and will enter to a new normalization with new focus strategy, boosted by its ventures in both South Korea and possibly Japan. Thus, we expect it to trade at a level close to its sister company GenM at 7-10x. We are now more comfortable with GenS as current price, in our view, has factored in all the negativity.

• GenM: Despite stable Malaysia operation, its inconsistent earnings from overseas operations continue to drag its performance. We continue to see no major short-term catalyst(s) for the group as future earning accretion will only be seen from FY17 onwards.

• GenT: We remain positive on GenT, especially its long-term expansion plan in Las Vegas and the potential benefits from any of the improved performance from its subsidiaries and overseas operations. It would also serve as the best option for long-term investors as it houses all expansion plans and ventures by its subsidiaries while enjoying the diversification.

• BToto: We believe that the NFO market is rather saturated. While its sports betting operation has been taken a hit with low growth and absorption of GST, we expect better contribution from its car dealership segment from H.R. Owen. Other than its attractiveness for being a high dividend yield stock, we do not see any positive catalyst for BToto in the near term.

Catalysts

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

• GITP to start kick by phases from 2H2016 onwards

• GenS's regional expansion into international markets (Japan and South Korea).

• GenT's international expansion into Las Vegas (RWLV) and expansion of power segment.

• Margin expansion for car dealership business for BToto.

Risks

• Hike in gaming tax.
• Failure in casino license renewal in Malaysia and Singapore.
• Execution risk
• Worsen than expected local consumption

Rating

NEUTRAL

Positives

• (1) Defensive and monopoly industry

Negatives

• (1) Highly regulated industry; (2) Earnings highly dependable on luck factor

Valuation

• We remain NEUTRAL on the sector with top pick of GenT (BUY; TP RM9.38) based on SOP valuations.

Source: Hong Leong Investment Bank Research - 8 Jan 2016