Highlights

• Maintain NEUTRAL in view that 2H16 will remain unexciting. However, we expect a new normalization after absorbing GST impact since Apr-16. Local consumption is also expected to improve and we opine that topline should stabilize and improve from here onwards with 2015 serving as a low base.
• GenS: We are more cautious in 2HFY16 for Singapore as we expect yoy decline in total volume. Nevertheless, we are more positive going into 2017 and upgrade to a BUY at TP of S$0.90. Trading at forward EV/EBITDA of 6.2x, it is a good entry to a regional gaming player that houses a world class theme park and is expanding regionally. We believe its strategy to regain market share will continue to bear fruit and expect cleaner balance sheet in 2017 as credit policy has been tightened since end of last year.
• GenM: The number of visitors is expected to gradually pick up from 2H2016 onwards given various amenities under GITP are set to roll out by then. However, we are of the view that growth in 2017 is largely priced in impending more exciting catalysts to come in by 2018. Despite the positive catalyst, we maintain HOLD as we are still wary on the uncertain overseas operations, GITP execution risk and high cost involved.
• GenT: We still prefer GENT as our top pick at TP of RM9.88 on the perspective of deep valuation. Trading at EV/EBITDA of 5.2x, GenT is at a >40% discount of regional peers. With various expansion plans housed under parent group set to bear fruit from 2017 onwards, we opine that the magnitude of discount is unjustified in spite at holding company level. Another potential catalyst from rumoured US$15bn IPO of TauRx Pharmaceuticals Ltd could yet provide another 27% upside to our TP.
• BToto: We downgrade BToto to a HOLD given that share price has rallied and reached our TP of RM3.10 as we remain cautious on its longer term outlook for a matured NFO market with shrinking margin on di fficult economic conditions and rampant illegal gaming activities. However, potential upside maybe coming from possible margin expansion at H.R. Owen and additional income from Vietlott.

Catalysts

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

• GITP to kick start by phases from 2H16 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; 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

Top Pick

We remain NEUTRAL on the sector with top pick of GenT (BUY; TP RM9.88) based on SOP valuations.

Source: Hong Leong Investment Bank Research - 8 Jul 2016