Pent-up demand could revive gaming sector

People will still spend money for lotteries but at a smaller amount, says analyst

by FARA AISYAH/ pic credit: gentingmalaysia.com

THE gaming companies whose earnings have been badly hit by the Movement Control Order (MCO) are expected to benefit from customers’ pent-up demand.

Rakuten Trade Sdn Bhd VP of research Vincent Lau said the companies are likely to recover from their losses soon as punters are back to their betting.

“Their earnings will be better because people will still spend money for lotteries despite the decrease in disposable income.

“During bad times people would want to try their luck. Maybe instead of spending RM5, they will get a RM2 ticket, so the gaming companies will definitely recover from the bad days,” he told The Malaysian Reserve.

Genting Bhd posted a net loss of RM132.32 million in the first quarter ended March 31, 2020 (1Q20), compared to a net profit of RM561.64 million in the same quarter last year, while revenue fell 26.26% year-on-year (YoY) to RM4.11 billion.

Meanwhile, Genting Malaysia Bhd recorded a net loss of RM417.96 million in 1Q20 compared to a net profit of RM268.29 million in 1Q19, as revenue dropped 28.5% YoY to RM1.95 billion.

Magnum Bhd’s net profit in 1Q20 declined 7.35% to RM55.59 million from RM60 million last year, while revenue tumbled 19.39% to RM609.54 million from RM756.24 million in 1Q19.

Berjaya Sports Toto Bhd registered a net profit of RM48.61 million in January to March 2020 mainly attributed to sales made by Sports Toto Malaysia Sdn Bhd.

Its revenue for the period amounted to RM1.33 billion and was contributed by sales from the number forecast operator business operated by Sports Toto and the auto retailing business operated by HR Owen plc.

Areca Capital Sdn Bhd CEO and ED Danny Wong said he is ‘Neutral’ in the gaming sector, subject to valuation.

“If price continues to fall it may look good for some dividend yield, as lower price means higher yield which mitigates potential lower dividend payout due to MCO.

“I believe there will be hard-core supporters in this sector due to habitual gaming. Some suggest that the weaker the income, the more people will bet,” he said.

Moody’s Investors Service Inc said most gaming operators can withstand temporary cash burn due to the Covid-19 pandemic.

In a sector in-depth report, Moody’s noted that limited international travels, property closures and the ongoing social-distancing measures would keep the gaming sector’s prospects weak until at least 2021.

“We expect that the combined earnings before interest, taxes, depreciation and amortisation of gaming companies with exposure to Asia Pacific will fall around 70% in 2020 before gradually recovering in 2021,” VP/senior credit officer Jacintha Poh said.

She added that despite the bleak outlook, most rated companies have sufficient liquidity to meet their cash needs and debt payments over the next 12 months.