Highlights

• Outpacing KLCI… Casino-related gaming stocks have outperformed FBM KLCI in 1H17 on the back of more stable operating environment and captivation of GITP expansion as well as inflow of foreign buying interests.

• Remain positive on GITP… while regional gaming sector continues to show some positives. In Malaysia, we believe the multiyear growth story of GITP would continue to be driven by VIP areas in Sky Casino and refurbished Theme Park Hotel, which are among the facilities to be unveiled in 2H17.

• Prospect developments include (1) the expansion at Resorts World New York and new casino at Resorts World Las Vegas; (2) the stalled casino plan in Miami may be revived following GenM’s proposal to build a hotel at Miami Dade’s Omni bus terminal; and (3) possible venture into Japan remains an exciting prospect for GenS. However, casino plans in Massachusetts is stalled due to the ongoing legal issue.

• Stable and improving overseas operations In Singapore, we expect continuation of stabilized performance drawing from improved margin and sound credit policy. Internationally, improved performances have been observed in both UK and US signalling the previous year’s struggles have come to an end with improved operational efficiencies and positive results after repositioning of businesses.

• Still challenging for NFO... We opine that overall outlook will remain challenging in a saturated market with intense competitions among operators as well as against illegal ones. Down trending ticket sales and dividend remain the worry weathering the lacklustre share price while the ongoing disputes on the differences in interpretation of GST with Royal Customs Malaysia and IRB on retrospective tax claims are also among the negative uncertainties.

Catalysts

• Recovery in the VIP markets.

• Growth from the GITP.

• Regional and international expansions (Japan and US).

Risks

• Hike in gaming tax, execution risk.

• Slower-than-expected local consumption growth.

Rating

OVERWEIGHT ( ↔ )

• Maintain OVERWEIGHT as we remain positive on the growth story of GITP would continue to drive the sector, whereas stabilized and improved performances are expected from international operations. Whereas regional gaming sector has recently shown some positives, ending the previous year’s struggles.

Top Pick

• Our top pick within the sector remains GenT , a buy recommendation with unchanged TP of RM11.63. We believe the recent sell down represents a good entry opportunity for investors to accumulate. We believe it remains a deep value play with high holding discount of >30% and is a cheaper proxy to GITP expansion play at a below historical mean EV/EBITDA of 7.9x

Source: Hong Leong Investment Bank Research - 24 Jul 2017