Analysts neutral on gaming sector for next year, GST one reason

Published: Tuesday December 31, 2013 MYT 12:00:00 AM 

Updated: Tuesday December 31, 2013 MYT 8:06:16 AM

An analyst told StarBiz that the rising cost of living and higher inflation rate would dampen growth.
Analysts expect growth for the sector to be in the single-digit range compared with the
high-teens level for casino operators in Macau.

PETALING JAYA: The relatively unexciting growth rate and possible pressure on margins due the implementation of the Goods and Services Tax (GST) are among the reasons for analysts to take a “neutral” view on the gaming sector.

Analysts expect growth for the sector to be in the single-digit range compared with the high-teens level for casino operators in Macau.

An analyst told StarBiz that the rising cost of living and higher inflation rate would dampen growth, particularly for the numbers forecast operators (NFOs).

Meanwhile, RHB Research said in a report that the implementation of GST by April 2015 could potentially hit the earnings of gaming players and possibly erode the earnings forecasts for the companies under its coverage by 6.3% to 13.8%.

“Although Malaysia’s current gaming-related taxes (i.e. 25% casino tax, 8% gaming tax and 8% pool betting duties on NFOs) are already higher than Singapore’s (i.e. GST of 7% on top of 5% and 15% taxes on the VIP and mass-market segments, respectively), we do not discount the possibility of more hikes in the existing gaming duties as the Government seeks ways to beef up the nation’s tax collection,” the research house noted.

The analyst, however, said it was still too early to estimate the potential impact the GST would have on these counters until further details of the imputation were known.

Nonetheless, he is still optimistic on the sector’s outlook due to the potential gaming liberalisation in 2015.

He said NFOs provide decent dividend yields of 6.5% to 7% if they were able to maintain their earnings.

He noted that the halt in Genting Bhd’s theme park operations for two years could impact visitor flow to the casino, but pointed out that it was still early to judge how that could turn out.

RHB Research forecasts a domestic industry earnings growth of 5.6% for 2014 and 6.7% for 2015 as compared to the vibrant growth in Macau, projected at 22.4% for 2014 and 17.8% in 2015.

“The sturdier growth in Macau’s gaming market, in our view, is mainly underpinned by the continued influx of visitors from China in tandem with the domestic economy’s expansion.

“That said, we believe that growth-seeking investors are likely to increase their exposure to Macau’s gaming market while staying away from Malaysia-listed gaming stocks for now in view of the relatively less-exciting local growth prospects,” the firm noted.

The analyst also said better transportation infrastructure that linked people from the inner cities in China to Macau would continue to fuel the exponential growth of the gaming industry there.

“Regionally, the earnings growth of casino operators in Macau has been beating estimations. Meanwhile, in Singapore, the sector has reached a saturation point,” he said.

At close, Berjaya Sports Toto Bhd added two sen to RM4.04, Magnum Bhd was unchanged at RM3.11 and Genting slipped six sen to RM10.30 while Genting Malaysia Bhd shed one sen to RM4.40.