GENTING had doubled its capex to USD4b for the new Las Vegas venture which we believe is good for its branding when competing with international casino operators for new markets like Japan. The Japanese may miss the timeline to get the Casino Introduction Bill passed this year, but new casinos should be able to get ready before the 2020 Tokyo Olympic. This should continue to excite the market. While we continue to PREFER casino plays for their exciting expansion story, income seeking investors should include NFO stocks in their investment portfolio given the sustainable attractive yields. We continue to overweight the sector with GENTING remained at our sector pick for its offshore expansion story. Although both NFOs offer attractive yield, we prefer BJTOTO over MAGNUM given its fairly stabled quarterly earnings while the latter’s results are affected by volatile luck factor.

1QCY14 results no surprises. All gaming stocks reported satisfactory results except Berjaya Sports Toto Bhd (BJTOTO, OP; TP: RM4.25) which reported 4Q14 earnings slightly below expectation on luck factor. The NFO ticket sales expanded QoQ due to seasonally CNY factor while improved luck factor pushed Magnum Bhd (MAGNUM, OP; TP: RM3.59) earnings higher. On the other hand, Genting Bhd (GENTING, OP; TP: RM12.50) posted 18% QoQ earnings growth on the back of impressive numbers from the Singaporean operations, which saw Genting Singapore plc (GENS, NOT RATED) achieved record high rolling chip volume of SGD18.6b with market share improved significantly to 59% from 53% in 4Q13. Genting Malaysia Bhd (GENM, MP; TP: RM4.57) registered lower earnings, which contracted 10% QoQ, no thanks to lower earnings from Malaysian and UK casino operations. North America segment reported improved on higher business volume and win rate at RWNYC while new startup losses at RWB narrowed to RM52m from RM59m previously.

Casino: The heat continues. Looking at the progress, the Japanese is likely to miss the timeline to pass the Casino Introduction Bill by the parliament this year, but it should be gotten it done by next year in order to get ready before the 2020 Tokyo Olympic. GENTING said that GENS will partner with a local Japanese institution to bid for the integrated casino resort there. On Jeju side, the new venture will get the building permit by end-Jun and paving the way for a soft opening in early-2017. Across the Pacific Ocean, GENTING had unveiled details for Resort World Las Vegas (RWLV) in early-May where the USD4b project, doubled up from initial USD2b plan, is to be developed in phases with ground breaking in 2H14 and will take 24-36 months to complete. We are excited about its RWLV venture as the status as a casino operator in Las Vegas should help its branding to compete with other international operators in new markets.

NFO: still compelling valuation with attractive yields. Even since the completion/abortion of their corporate exercise, both MAGNUM and BJTOTO had come under selling pressure, especially the latter which share price is currently at multiple-year low. YTD, these two NFO stocks performed badly with share price contracted 2%-3% while FBMKLCI still posted small gain of c.0.5%. They are now trading at CY15 PERs of 12x-13x, which is fairly attractive given their earnings profile and highly regulated industry. The declining valuations are partly attributed to volatile earnings of MAGNUM and the on-going diversification of BJTOTO’s Filipino unit, Berjaya Philippines Inc (BPI, NOT RATED). We believe the current low valuations for both NFOs are unwarranted. In addition, they also offer yields as high as 6%-7% which is among the highest on Bursa Malaysia.

OVERWEIGHTING the sector with GENTING still our pick. GENTING remains as our TOP PICK for the sector given the exciting new casino market story, such as Korea and Japan, as well as the new RWLV casino. On the other hand, while we like the GITP (Genting Integrated Tourism Plan) story, we believe GENM is currently trading at its fair value. While earnings growth is expected to be less exciting for NFO, income seeking investors may find value in BJTOTO and MAGNUM given their attractive yields at valuations, which are at multiple-year low. While both have OUTPERFORM calls, we prefer BJTOTO over MAGNUM given the former’s fairly stable quarterly earnings over the latter.

Source: Kenanga