Performance of Malaysian stocks linked to consumer discretionary spending including casino gambling and air travel are likely to benefit from an uptick in consumption as the initially inhibiting effect of a local sales tax increase wears off, says Japanese brokerage Nomura.
That is likely to include the stock performance of Genting Malaysia Bhd, operator of Resorts World Genting (pictured), Malaysia’s only casino resort, said the brokerage. Genting Malaysia has in any case reportedly been absorbing on behalf of customers an April 2015 hike in Malaysia’s Goods and Services Tax (GST) which pushed that levy on consumption to 6 percent.
According to some investment analysts, GST on goods and services at Resorts World Genting is levied at an effective rate of 4.25 percent, rather than the national rate of 6 percent, because Genting Malaysia is allowed to offset some of the GST liability against its gaming tax liability.
“We believe the next leg of Malaysian equity outperformance will be driven by a consumption recovery, as the two-year drag due to GST starts to fade, on pent-up demand,” said a team of Nomura analysts in a 114-page Malaysia strategy report looking at consumer demand generally in that nation.
Nomura’s study also looked at the effects on consumer demand within Malaysia of the country’s economy being opened up to investment from neighbouring Asian nations. The brokerage noted foreign direct investment from China to Malaysia was seeing an uptick, linked to China’s “ongoing domestic slowdown, [its] government’s push for its Belt and Road Initiative and regional geopolitics”.
That was a reference to moderating domestic consumption in China and to that country’s efforts to engage in infrastructure development and trade initiatives with countries and places along traditional global trading routes – referred to variously by China as the “Silk Road Economic Belt and the 21st-century Maritime Silk Road,” or as the “One Belt, One Road” initiative.
The Nomura team said the Malaysian sectors most likely to benefit from China’s Belt and Road initiative were finance, consumer goods, contracting, transport and logistics.
But it also noted Genting Malaysia’s home-market gaming resort in Genting Highlands was likely to benefit from “capital expenditure-driven future earnings growth and our bullish view on Malaysia tourism and travel stocks”.
Nomura described Resorts World Genting as “one of the few global integrated resorts undergoing large-scale capacity expansion”.
The resort is getting a major revamp, with management having embarked on a 10-year, MYR10-billion (US$2.38-billion) master plan called the Genting Integrated Tourism Plan, or “GITP”. It includes a theme park called 20th Century Fox World Malaysia, which is currently scheduled to open in late 2018.
Affin Hwang Investment Bank Bhd said in an August note that annual group revenue for Genting Malaysia – which also has casino interests in the United Kingdom, the United States and the Bahamas – could rise to nearly MYR10.87 billion by 2018, partly on the strength of 20th Century Fox World Malaysia, a Hollywood-themed family facility. In 2016, the group’s revenue was MYR8.93 billion.
Nomura’s latest report on Malaysian consumer equities also discussed Genting Malaysia’s sibling, Genting Singapore Plc – which operates the Resorts World Sentosa casino resort in Singapore and is interested in pursuing a casino licence in Japan – and the parent of both entities, Malaysian conglomerate Genting Bhd.
“We believe it [Genting Bhd] offers a cheaper and laggard exposure to its subsidiaries,” noted Nomura.
Regarding Genting Singapore, the brokerage noted: “Strong first-half 2017 results driven by healthy margins and low impairments [bad debt] make it one step closer to the SGD1-billion [US$740.1-million] adjusted EBITDA mark for the first time since 2014, barring hold-related volatility.”
Nomura added it expected what it termed “news flow” on the “revamp of Resorts World Sentosa before the year-end once capex/regulatory approvals are finalised,” adding “this should improve visitation prospects” at the Singapore resort.
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Adjusted EBITDA reported by Asian casino operator Melco Resorts and Entertainment for the fourth quarter of 2020