Will GENM play catch up? To recap, US gaming stocks such as Las Vegas Sands, Wynn Resorts Ltd and Melco Resorts & Entertainment Ltd have rebounded between 11-15% respectively since 1 Dec after Omicron’s fear subsided, as the latest research findings indicated it could be less severe than Delta variant (source). However, Malaysia’s gaming stocks such as GENM and GENTING performances (only grew 1.1% to 1.5% for the same period) were relatively lackluster against its peers. The tepid share prices performance could be attributed to “market unfriendly” taxes in Budget 2022 that triggered net foreign selling from 1 Nov-9 Dec (net sold RM533m).

Nevertheless, we believe GENM will play catch up soon underpinned by (1) RWG’s recovery trend remains intact; (2) Malaysia international borders may reopen by January 1 (source), (2) undemanding valuations of 16.3x FY22 P/E and 5.8% attractive DY against its peers (#Figure 1) and (3) GENM is viewed as a key proxy for investors to ride on this post-pandemic leisure boom.

Swift recovery in 4Q21 and beyond. With RWG reopened on 30 Sept, GENM’s earnings is expected to experience a swift recovery in 4Q21 and beyond on the back of pent-up demand from local tourism which accounts for >70% of its visitations. Moreover, GENM’s U.S and UK operations which had posted impressive earnings in 3QFY21 are expected to sustain in the coming quarters. On the other hand, the widely anticipated SkyWorlds theme park (to be launched by end of Dec) would further bode well for future earnings.

May fill the gap. Affected by the Omicron’s variant news flow, GENM tumbled 11% from RM3.05 on 24 Nov (the 1st time Omicron was discovered) to a low of RM2.71 (2 Dec) before staging a mild rebound to end at RM 2.81 last Friday. With indicators showing uptick bias, we expect potential downtrend reversal to refill its RM2.89-2.94 gap before reaching our LT objective at RM3.00-3.17 levels. Cut loss at RM2.64.

Source: Hong Leong Investment Bank Research - 13 Dec 2021