The leader of the Federation of Chinese Associations Sabah (FCAS), an organization promoting the cultural and business interests of Malaysia’s Chinese community, has warned that major tax hikes to be imposed on Genting Malaysia could ultimately see a decline in Chinese tourism.
Malaysian Finance Minister Lim Guan Eng last Friday revealed much higher than expected fees to be imposed on the veteran casino operator during his budget speech, with the annual casino license fee to rise from MYR120 million (US$28.8 million) to MYR150 million (US$36 million) and the tax on gross gaming income to jump from 25% to 35%.
Commenting on the size of the increases, FCAS President Tan Sri Dr T. C. Goh warned that Genting may now have no choice but to cut back on the free services it offers to some guests which could ultimately lead to them choosing other Asian destinations in future.
“Genting Casino, the only casino in Malaysia, could be even more well-known than our country itself,” he told The Borneo Post. “It is a must-visit destination for many tourists from China.”
Goh added that Genting Malaysia’s key Chinese customer base would be at risk if the operator was forced into such cuts.
News of the tax hikes also saw analysts quickly changing their tune, having previously stated that Genting was well placed to overcome any increases.
Commenting in late October on recent gains made by the company’s stocks, Nomura analysts said, “Given Genting Malaysia’s share price correction of 9% since the beginning of October (versus the Kuala Lumpur Composite Index’s 1.9% decline), we believe the market has already more than factored-in the bear case scenario of a 5-percentage point increase in gaming tax.”
Instead, the shock 10% increase saw Genting Malaysia’s share price plummet by 30% on Monday – the company’s highest single day fall on record, according to Bloomberg – with analysts quick to downgrade.
In contrast to its October note, Nomura said it now estimates an “MYR600 million to MYR700 million (US$144 million to US$168 million) impact on Genting Malaysia EBITDA and net income for fiscal years 2019 and 2020, which would offset a big chunk of the earnings growth expected from Genting’s substantial capital expenditure into new capacity over the past five years.”
The brokerage was highly critical of the size of the hike, adding that the increases “diminish the investment appeal of the gaming sector.”
Genting Malaysia is in the midst of a comprehensive makeover of Resorts World Genting under its Genting Integrated Tourism Plan (GITP), with the company expecting to tip in almost MYR10.5 billion as part of the 10-year plan.
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