Highlights

• Eyes on GITP… 2017 marks the start of multiyear growth from the GITP initiative involving RM10.4bn with progressive opening of new amenities and gaming tables following the recent commencement of new cable car system (Awana SkyWay), retail space (Sky Avenue Shopping Mall) and the long awaited 20th Century Fox Theme Park by end of 2017.

• Potential news flow… Medium-term catalysts include the expansion project at Resorts World New York with additional video gaming machines and the US$3.3bn Resorts World Las Vegas. Possible venture into Japan following the legalization of casino integrated resorts, casino plans in Massachusetts and Miami are potential longer-term catalysts. A diminishing wild card in TauRx may still string a surprise to the market.

• Stability in Singapore… as the gaming market matures with moderate growth outlook on the back of shrinking VIP market. Despite an increase in overall visitor arrival (up to Oct16) by 8.3% yoy, the estimated overall GGR contracted by 13%. However, we believe it will continue to draw visitors from the region after having established as one of the top travel destinations in a duopoly market.

• Unexciting outlook… given a matured NFO market with stagnant sales and lack of catalyst. Despite a relatively stable market, industry sales especially 4D is still in a downtrend and will continue to be hampered by weak consumer sentiment and cannibalization from illegal operator. In the absence of growth and news flow, dividend yield of >5% will continue to serve as the support for share price.

Catalysts

• Recovery in the VIP markets.

• Growth from the GITP.

• Regional and International expansion (Japan and US).

Risks

• Hike in gaming tax, execution risk.

• Slower than expected local consumption growth.

Rating

• OVERWEIGHT

• Upgrade to OVERWEIGHT as we see growing steam of GITP while the uncertainties that have been clouding the gaming sector for the past two years are less of a worry now. Drawing from growing optimism coming from a long-awaited recovery in Macau, we opine that 2017 would turn out to be a better year.

Top Pick

• Our top BUY is still GenT with TP of RM10.29 ( ) as we believe it is a cheaper proxy to buy into the GITP growth. Our Our FY17 EBITDA is forecasted to grow by 12% and we expect both the subsidiary giants in GenM and GenS to fare better going forward, hence the magnitude of holding company discount currently is unjustified at c. 36%

• Upgrade GenM to BUY with a higher TP of RM5.10 ( ). A projected 3-year EBITDA CAGR of 11% on the back of 6.7% growth in visitors’ arrival following the GITP. We believe it is a calculated bet on the growth story on the legendary RWG as we expect minimal downside moving forward given the improved overseas operation coupled with the double-tier tax incentives.

Source: Hong Leong Investment Bank Research - 6 Jan 2017