UOB Kay Hian Research analysts have named Genting Singapore as their top sector pick for 2023, citing significant upside from the return of Chinese visitors to its Singapore IR, Resorts World Sentosa, in the months ahead.
Genting Malaysia and fellow Malaysian-based gaming firm RGB International Bhd have also been named as attractive buys, placing them ahead of Macau stocks which have by now already factored in some short-term recovery.
According to a note issued by UOB Kay Hian Research after mainland China, Macau and Hong Kong effectively dropped almost all remaining border restrictions on Sunday, Genting Singapore stands out because of its historical reliance on Chinese visitation.
“We prefer Singapore gaming to its Malaysian counterpart, partly because Genting Singapore has the highest reliance on Mainland China patronage that accounted for an estimated 20% of its pre-pandemic revenue,” the analysts said.
“We believe the market should sustain its positive sentiments towards Singapore’s gaming sector which includes Genting Singapore in 2023, anchored on the sector’s meaningful core profitability recovery which promises defensiveness amid current market volatility.”
In the case of industry distributor RGB, UOB Kay Hian Research said it expects the company’s net earnings to fully recover to pre-pandemic levels of around RMB40 million (US$12.3 million) this year due to a strong backlog of slot machine orders.
“RGB’s earnings will continue to gain prominence with the gradual reopening of emerging gaming jurisdictions which were thriving prior to the lockdowns,” the analysts wrote, maintaining an “Overweight rating” for RGB and for Genting’s Singapore and Malaysian entities.
However, they have issued a “market weight” rating on the Macau gaming sector despite estimates of strong recovery in the year ahead.
“Following the past months’ stock rallies, the EV/EBITDA valuations of the Macau gaming stocks under our coverage have rebounded significantly to above their pre-pandemic levels, as investors partly price in further GGR recoveries in 2024,” the analysts said, adding that the reinstatement of dividends could take some time.
“Fundamentally, Macau gaming companies’ 2024 valuation should trade below their pre- pandemic mean given the concessionaires’ capex commitment for non-gaming facilities, which lowers operating cash flows by 19%. Consequently, companies will likely need time to reinstate their pre-pandemic dividend policies.”
Conversely, the bank expects both Genting Singapore and Genting Malaysia to announced “generous” dividends by the end of this year.
