Taking cue from the NRP, we believe that NFO’s will be allowed to reopen in Phase 3 (est. Sept-Oct) and RWG in Phase 4 (Nov-Dec) when interstate travel is allowed. We feel that the longer term post-vaccine timeline points to a recovery for the gaming sector, driven by significant pent up demand waiting to be unleashed. However, near term transitory headwinds remain fluid, the recent “delay” in migration to Phase 2 (initially set for 28 June) is telling. Till Malaysia migrates to Phase 3 and 4 of the NRP, these near term transitory headwinds for the gaming sector will still linger. On the balance of these, we keep our NEUTRAL sector rating.

Gauging the reopening timeline. We try to gauge the possible reopening timeline for the gaming sector, judging from the National Recovery Plan (NRP) which is currently in Phase 1. In our view, the transition to Phase 2 (we expect end-July) may not mean much for gaming players as the reopening in this phase is likely to be more manufacturing related. However, the migration to Phase 3 (targeted Sept-Oct) will allow some degree of social activities. In this regard, we think it may entail a reopening for consumer centric industries, possibly NFO outlets too. At the final Phase 4 (estimated Nov-Dec) of the NRP, interstate travel and domestic tourism would be allowed, paving way for the reopening of RWG, we believe.

Possible NFO reopening in Phase 3. We believe that the possible reopening of NFOs during Phase 3 will see BToto experience an exponential recovery. Recall that, the recovery in revenue for BToto was almost immediate when the government moved from MCO1.0 into CMCO and from MCO2.0 into CMCO. On a more positive note, we believe that its UK motor vehicles subsidiary HR Owen would continue to contribute to earnings positively as the UK has already achieved some form of normalcy from the Covid-19 pandemic. Taking a forward looking view into Phase 3 onwards, we maintain our BUY call for BToto with a TP of RM2.40.

Longer term view for RWG neeed. RWG has been affected greatly in FY21 due to the interstate travel bans and implementation of MCO/FMCO and we do not discount the possibility of RWG remaining closed until Phase 4 of the NRP. However, we choose to remain optimistic due to the current pace of the vaccination drive, which is gaining pace strongly. We believe that footfall and hotel occupancy rates of RWG would bounce back strongly in FY22 once we significant levels of the population are inoculated. We believe that its current predicaments would only be transitory and we see a lot of value in GenM at this juncture. We believe that the recovery of its footfall into its casinos and occupancy rates for its hotels would be even faster than before due to new attractions sites like the Genting SkyWorlds Theme Park. Moreover, we believe that it’s US and UK operations are expected to mitigate some of its losses from RWG as the US and UK have already achieved some form of normalcy from Covid-19. Most casinos in the US and UK are already close to its pre-lockdown capacity and is expected to fully recover soon. All in, we maintain our BUY call at TP of RM3.05 for GenM as we believe that investors will look beyond FY21.

Still without its customers from key markets. Moving forward, GenS’ operations would still be supported by the easing of restrictions in its casinos as the Covid -19 outbreak in Singapore is very much contained. GenS would have to rely on its local customers to weather through the lack of visitors from its key markets. On a separate note, GenS has named its 5 Yokohama IR consortium partners, comprised entirely of local Japanese corporations and we believe that GenS would be in pole position to win the selection by Yokohama due to its strong financials and good operational track record. Nevertheless, we maintain our HOLD call on GenS with a TP of SGD0.85 as GenS is predominantly dependent upon its foreign visitors from its key markets for its revenue.

Successful launching of RWLV to mitigate losses from GenM for GenT. We believe that the launch of its USD4.3bn RWLV hotel-casino on the 24 June will contribute to GenT’s profit decently after its successful opening night which attracted more than 20,000 visitors. Nevada casinos recorded a gaming win tally of USD1.23bn in May to mark a third consecutive month exceeding the USD1bn mark. The 3 months ended May tally was c.25% higher than the level seen in 2019 before the Covid-19 pandemic. Similar to GenM, we believe that investors will start to look beyond FY21. Hence, we maintain our BUY call for GenT at TP of RM5.75.

Remain NEUTRAL. Overall, we feel that the longer term post-vaccine timeline points to a recovery for the gaming sector, driven by significant pent up demand waiting to be unleashed. However, near term transitory headwinds remain fluid, the recent “delay” in migration to Phase 2 (initially set for 28 June) is telling. Till Malaysia migrates to Phase 3 and 4 of the NRP, these near term transitory headwinds for the gaming sector will still linger. On the balance of these, we keep our NEUTRAL sector rating.

Source: Hong Leong Investment Bank Research - 15 Jul 2021