• OVERWEIGHT; Top Pick: Genting (GENT). As Malaysia and Singapore transition into endemicity, we believe the prospects of the Genting firms and number forecast operators (NFOs) are looking increasingly certain. We like GENT, as it benefits from tourist-fuelled recoveries in Singapore and Malaysia, Las Vegas resort’s continued ramp-up and growth, and plantation unit’s exposure to high CPO prices. Its attractive 6.1x FY23F EV/EBITDA allows investors to play on its forthcoming earnings recovery. This report marks the transfer of coverage to Jim Lim Khai Xhiang.

• Omicron merely a hiccup to Resorts World Genting’s (RWG) recovery. We take cues from RWG’s stronger-than-expected recovery in 4Q21 and expect it to chart even sturdier numbers in FY22. While the spike in COVID- 19 cases in Malaysia over February and March may have dampened footfall at the resort, we believe – given Omicron's lower mortality rate – the impact on footfall and gross gaming revenues is not likely to be as severe as with previous COVID-19 variants. Also, the seasonally stronger Lunar New Year gaming volumes should help support Genting Malaysia’s (GENM) 1Q22 earnings.

• Continued NFO ticket sales recovery. While ticket sales have been slow in 4Q21 – likely because punters were cautious on the high number of new cases, and were financially worse off from the FMCO – these have continued to show steady improvement, and are currently estimated at c.85% of pre-pandemic levels. Given the defensive nature of the NFO business and popularity of the games – as witnessed during the recent wild run of Supreme Toto 6/58 Jackpot prize to a whopping MYR98m – we still expect ticket sales to further recover and normalise by 1H22 as the country transitions towards living with COVID-19.

• We still favour GENT as the Top Pick for the gaming sector, as GENT benefits from: i) GENM’s recovery due to a rebound in tourist activity and revenge spending, ii) Singapore’s firm stance to lift most COVID-19 restrictions that should fuel Genting Singapore’s (GENS) recovery, iii) Resorts World Las Vegas’ (RWLV) continued ramp-up and growth, and iv) Genting Plantations’ (GENP MK, NEUTRAL, TP: MYR8.90) exposure to high CPO prices. GENT is trading at an attractive 6.1x FY23F EV/EBITDA vs the regional peers’ average of 11.1x. Foreign investors may also find GENT’s regional and US exposure an attractive alternative to the Macau gaming sector.

• Magnum remains our NFO Top Pick. We continue to like Magnum for its FY22-23F yields of 7-9%. Catalysts include the recovery in NFO outlet footfall, the continued clampdown on illegal gambling activity, and potential monetisation of Magnum's stake in U Mobile.

• Key downside risks to the sector include a fluctuation in luck factor, changes in government policies, and a prolonged pandemic.

Source: RHB Securities Research - 25 Apr 2022