Casino 

Genting  Malaysia  a  better  bet.  Total  visitor  arrivals  to  Genting  Highlands  remained  stable. Among  the  mass  market  domestic  visitors,  local  day-trippers  made  up  75%  of  total  visitor arrivals, while Malaysian hotel guests contributed to 67% of room occupancy. Unlike Singapore, where gaming volume is volatile, Malaysian gaming volume held up well growing at double-digits for VIP gaming and mid single-digit for mass market gaming. As such, Genting Malaysia - with 83% of its revenue generated frm its stable Malaysian gaming base - provides greater earnings visibility  compared  with  Genting  Bhd,  which  is  facing  greater  earnings  volatility  from  Genting Singapore.  Note  that  Genting  Singapore  contributes  a  sizeable  55%  of  Genting  Bhd's  group profit while the operating environment in Singapore remains challenging given its heavy reliance on  VIP  gaming,  which  is  feeling  the  impact  of  the  global  economic  slowdown  as  well  as regulatory restrictions on full-fledged junket operations in Singapore.

Muted  near-term  prospects  for  Genting  Singapore.  We  expect Genting Singapore's near-term prospects to remain challenging.VIP and mass market volumes have been impacted by the global  economic  slowdown  and  the  group's risk  aversion  in  managing  VIP  credit  lines  has somewhat increased. We expect this trend to persist as the tightening of the Casino Control Act will  have  a  greater  impact  on  domestic  Singaporean  and  Permanent  Residence  mass  market casino patronage, especially for segments that are deemed "financially vulnerable".  In our view, the following are likely to extend the current overall operating weakness well into 1H2013:  i) the impact of the strict amendments to the Casino Control Act, ii) management's cautious VIP credit provision  policy,  iii)  pre-operating  expense pressure  from  its  Marine  Life  Park  on  margins  until 2Q13, and iv) subdued regional macroeconomic environment. Our earnings forecast for FY13 is 7%  below  street  estimates.  Despite  the  seasonally  stronger  3Q  period,  VIP  and  mass  market gaming volumes for 3Q12 dipped 3% q-o-q, implying that global economic conditions continued to cast a cloud over the group's operating environment. With no significant catalyst in sight, we maintain our NEUTRAL recommendation on the stock.

NFO Segment:

BJTOTO  (BST):  Earnings  diluted  post  exercise  but  partially  offset  by  front-loaded dividends. BST's earnings are expected to decline by 18.6% after the disposal of its 20.5% stake in Sports Toto Malaysia to Sports Toto Trust as part of a proposed listing exercise on the SGX. However,  we  note  that  the  entire  corporate  proposal  is  expected  to  unlock  RM1.1bn  in  cash proceeds  for  BST,  thus  providing  ample  scope  for  the  group  to  raise  its  ROEs  via  a  pro-active front-loaded  capital  management  exercise  that  would  entail  a  combination  of  special  dividends and near 100% recurring dividend payout vs our current assumption of  a 85% recurring payout. Management  has  indicated  that  it  may  distribute  the  entire  48  sen  per  share  from  the  offer  for sale of its 20.5% stake in STM Trust as special dividend to BST shareholders. Concerns relating to a holding company discount will be mitigated by the fact that units in the STM-Trust could be eventually distributed back to BST shareholders. 

Valuation still attractive. Genting Bhd and Genting Malaysia's current valuations of 13.1x and 12.3x FY11 PEs respectively are attractive vs the regional large scale casinos' PE of more than 20x,  making  both  companies  the  two  cheapest  large-scale  casino  stocks  by  valuation  globally. We have  BUY  recommendations on  both  Genting  Bhd  (FV:  RM10.02)  and  Genting Malaysia (FV: RM4.21). However, we retain our NEUTRAL call on Genting Singapore (FV: SGD1.20). In the NFO segment, we continue to call a BUY on BToto as it remains a defensive high-dividend yield play (BUY, FV: RM5.01).