Riding on the influx of tourist arrivals. We continue to see GENM as a tourism play given the ongoing recovery in foreign tourist arrivals that still has room to grow. In 2Q23, RWG displayed encouraging EBITDA showing, matching corresponding period in 2019 due to greater cost control measures and recovery in foreign visitations (+33% QoQ) mainly driven by Singapore, Indonesia and China. However, it is worth highlighting that despite these promising developments, visitation numbers still fall short of pre-pandemic levels, standing at c.85% of the levels seen before the pandemic. Notably, Chinese visitations, a crucial demographic in the tourism sector, remain below the 2019 figures. This can be primarily attributed to flight capacity constraints stemming from China.To provide a broader context, Malaysia recorded 9.2m foreign tourist arrivals in 1H23, accounting for 57.1% of the government’s initial target of 16.1m this year. These impressive numbers were attained despite a relatively modest contribution from Chinese tourists, constituting a mere 5.4% in the initial five months of 2023 (in stark contrast to the pre-pandemic years of 2018-2019, where their share stood at 11-12%). Judging from the strong showing, Tourism Malaysia guided they could possibility hit 18m (+78.7% YoY) tourist arrivals this year. With the return of Chinese tourists set to recover further – given that they are the second-largest source of tourism in Malaysia and boast substantial spending power – we anticipate a gradual enhancement in footfall at RWG. We believe the tourism theme will stay topical over the next few years and remain upbeat on GENM that offers exposure.

Budget 2024. Considering that the tourist arrivals has yet to fully rebound back to prepandemic level, and the gaming sector is still in the process of recovery, we believe that another tax hike in Budget 2024 is unlikely. Not to mention that the previous gaming tax hike happened relatively recently in 2019. If the expected scenario of no rate hike in Budget 2024 indeed materializes, this should result in easing regulatory risks, which would be favourable for the gaming sector.

Range-bound. Traders are advised to deploy a range-bound trading strategy –buy at RM2.41-2.43 and sell near RM2.63-2.72 levels. A decisive breakout above the RM2.72 barrier may signal a new upleg, spurring greater upside toward RM2.83-2.89 levels. Cut loss: RM2.34.

Source: Hong Leong Investment Bank Research - 4 Oct 2023