Highlights

• GITP remains the catch in 2018, which will be driven by the recently opened VIP gaming areas, upcoming new indoor theme park (1H18) and the 20th Century Fox World Theme Park (2H18). The target of reaching 30m of visitation by 2020 from current 22m level signifies a CAGR of c.10% from 2016.

• Growing optimism in Singapore as the overall market condition has improved with higher gaming volume attributable to higher patronage coupled with the return of high rollers. Besides, we believe the EBITDA margin expansion in 2017 after the cost rationalization initiatives will continue to bear fruit moving into 2018.

• Chinese tourist the boon. With the growing middle class in China, the appetite of outbound travel has been growing tremendously and the trend is set to continue in 2018. Chinese are now the largest tourist arrivals group for Singapore and third for Malaysia. We believe the restrictions for Chinese to travel to South Korea could be beneficial to both GenM and GenS.

• Prospect developments . We expect any favourable news from Japan pertaining to the casino bill in 2H18 will create excitement for GenS. Resorts World Las Vegas is on schedule to open in 2020 while the casino plan in Miami may be revived. On the contrary, casino plan in Massachusetts are stalled due to the ongoing legal issue.

• NFO continues to be challenging. Expect to be stagnant or decline due to cannibalization from illegal operators which undermine the growth potential. In the absence of fresh catalyst, dividend yield of circa 6% will continue to serve as the support for share price.

• Immediate risk on tax hike is unlikely given that NFOs are still experiencing lacklustre sales outlook since the introduction of GST three years ago. Any increase in the gaming tax or pool betting duty may cause a lose-lose situation while benefiting illegal operators instead.

Catalysts

• Recovery in the VIP markets.

• Regional and International expansions (Japan and US).

Risks

• Hike in gaming tax, execution risk.

Rating

OVERWEIGHT ( ↔ )

• Maintain OVERWEIGHT as we believe captivation of GITP expansions will continue to drive the market with the reopening of both indoor and outdoor theme parks, supported by the overall domestic growth upcycle theme while international operations continue to show stabilized and improved performances. The return of VIP players seen in the regional markets is the another stimulus for the sector.

Top Pick

• Our top pick is GenT , a BUY recommendation with unchanged TP of RM11.76. We see GenT as the cheaper proxy to bet on the growth story from GITP and the recovery of GenS as well as the potential of venturing into Japan; at forward EV/EBITDA below its historical mean at 7.9x. It remains a deep value play with high holding discount of >30%.

Source: Hong Leong Investment Bank Research - 15 Jan 2018