We maintain our NEUTRAL view on the sector. Still the same story, the global gaming industry remains challenging while Malaysia and Singapore has been further dragged by the recent gaming tax rate hike. Moving into 2H19 we expect to see weakness in GenM; however we are positive that their cost saving initiatives will be able to partially cushion the gaming tax hike. We turn more optimistic on GenS as we believe that they have a competitive edge on winning the bid for Japan IR. NFOs will continue to be held up by the attractive dividend yield.

GenM’s FY19 will be weaker YoY. With on-going intense competition, gaming revenue will remain challenging for the rest of the year. We are also expecting visitorship to remain rather stagnant YoY at ~26m visitors/annum. With limited control over the topline, GenM had place focus on the cost rationalisation measures. Positive results had been seen on the group’s efforts. We are of the view that the costs saving measures are able to partially cushion the higher tax rate and lower tax incentives. We forecast FY19 earnings to be weaker YoY (-36%).

Clearer picture on outdoor theme park status by year end. GenM will not pursue the outdoor theme park with the Fox branding. Despite the theme park being ready for operation, with the ongoing legal case, GenM is unable to operate the theme park. The first hearing date of the Disney-Fox case is likely to be by end-2019 and is likely that GenM will request for permission to run the theme park during the hearing. As of now it is still uncertain on the opening date of the theme park.

How strong is GenS position in winning Japan IR? GenS is amongst the 7 entities that participated in the request-for-concept (RFC) phase. We ran a quick analysis on each company’s global presence and cash pile on hand (Figure #4). We opine that GenS and Las Vegas Sands may stand out among the rest, given their expertise in running casino in a strictly regulated country, Singapore. Besides that, GenS’s decent credit profile seems rather ready to undertake a huge capex.

Number Forecasting Operator (NFO) still in favour. Minimal impact had been seen, in the lower number of drawing days which took effect in Jan 2019. Instead, we saw BToto reported higher sales per draw (+10.2% YoY). We believe this is attributable to stricter enforcement by authorities to clamp down on illegal operators. Besides that, we expect to see growth in BToto in the coming quarters as the group had recently introduced a new game (4D Toto Zodiac).

Valuation. We upgrade to GenS to BUY from HOLD with higher TP of SGD 1.17 (from SGD1.08). As we revise our EV/EBITDA to 9x from 8x, as we think that the risk to reward had turn appealing. The stock is currently trading at -1SD below 5 years average EV/EBITDA. With the request for proposal (RFP) around the corner, we opine that in the near term, we may see some positive momentum on the stock. Following the higher TP for GenS, our TP for GenT is raised marginally from RM6.77 to RM6.80 but HOLD rating is maintained.

Maintain NEUTRAL. Although growth seems to be tapering off in the near term and situation had fundamentally turned challenging. We still favour GenS, we upgrade to

BUY with a higher TP of SGD1.17, as we think that it is too cheap to ignore and believe that any favourable news from Japan pertaining to the casino bill this spring will create excitement. Besides, we like its stability leveraging on Singapore’s growing tourism industry (especially tourist from China).

Source: Hong Leong Investment Bank Research - 4 Jul 2019