We are confident that the future recovery trajectory remains intact for the casino operators, underpinned by the rebound of travel demand and the visa-free travel pact between China and both Malaysia and Singapore. Key developments to watch this year include RWNYC’s bid for a full casino license in downtown New York City, as well as GenM’s potential participation in Thailand’s Entertainment Complex. As for the NFOs, we expect SPToto’s NFO segment revenue will continue to recover to pre-pandemic levels, while HR Owen’s revenue growth could remain flattish, impacted by the stronger ringgit against the GBP. All in, we stay OVERWEIGHT on the sector, with GenT as our preferred pick.

Casino operators. Going forward, we anticipate continued earnings recovery for GenS and GenM – and thus benefitting GenT – driven primarily by the improving tourist numbers (Figure 1 & 2). The recovery will be supported by the rebound in travel demand from major source markets across the Asia-Pacific region, especially mainland China supported by the 30 days visa-free travel agreements between China and both Malaysia (effective from Dec-23 to Dec-26) and Singapore (effective Feb-24). Meanwhile, Malaysia’s recovery will be further fuelled by its official assumption of the ASEAN Chairmanship in 2025. During this period, Malaysia will host key ASEAN meetings with delegations from prominent nations, including the US, China, South Korea, Japan, Europe, India, Australia, and New Zealand. This momentum will continue into Visit Malaysia Year 2026.

A notable development to monitor in 2025 could be the bidding for the full casino license in downtown New York City by Resorts World New York City (RWNYC). Currently, RWNYC is a casino operating with slot-like video lottery terminals (VLTs) and electronic table games. For RWNYC to operate with Las Vegas-style slot machines, table games, and sports betting, the casino must win one of the three full-scale downstate casino concessions. A successful bid would result in a major expansion and renovation of the casino, with an investment of USD5bn. The request for applications (RFA) process is expected to open in mid-2025, with licenses awarded by the New York Gaming Facility Board in late-2025. However, the ongoing complaint by the Nevada Gaming Control Board (NGCB) against its parent company, GenT, and the lawsuit by RAV Bahamas against GenM’s US unit could pose challenges to RWNYC’s chances of securing a full casino license.

Another key event to monitor this year will be the participation of GenM in the bidding for the Thailand Entertainment Complex. On 13 Jan 2025, Thailand’s Cabinet approved a draft law, the “Entertainment Complex Business Act”, which seeks to legalise gambling and casinos. According to news reports, Thailand could launch its first casino as early as 2029. During GenM’s AGM in Jun 2024, the group expressed interest in pursuing the Thailand’s Entertainment Complex project if the terms and conditions are favourable, as part of its geographical expansion strategy. As now, we have not factored in these two potential developments in our GenM’s and GenT’s TPs, due to their preliminary nature and lack of detailed information.

As for TauRx Pharmaceuticals (GenT’s 20.4%-owned associate), the pharmaceutical company has achieved success in its 3rd clinical trial for the drug hydromethylthionine mesylate (HMTM). Based on the Wall Street Journal report published in 2015, TauRx could be valued at USD15bn if it is listed on the Nasdaq following the successful completion of its 3rd clinical trial. It is important to note that the “drugs that slows Alzheimer's disease progression" market was devoid of competitors back in 2015. However, the FDA recently approved two drugs (regular pathway approvals) in the related field, namely Leqembi (by Biogen and Eisai) in Jul-23 and Kisunla (by Eli Lilly) in Jul-24. Assuming three of the drugs capture the addressable market equally, this could imply TauRx is worth USD5bn, or GenT’s stake could be worth USD1bn (RM4.7bn or RM1.22 per share), which is approximately 34% of current market cap. To be conservative, we will only consider this valuation in our TP post FDA approval.

NFOs. Going into FY25, we believe the SPToto’s NFO segment revenue will continue to recover to pre-pandemic levels. Notably, FY24 NFO segmental revenue accounted c.90%-95% of pre-pandemic figures. Nevertheless, we forecast the NFO’s EBIT to decrease c.6% YoY after considering the normalisation of the prize payout ratio (luck factor) in FY25. For HR Owen, car sales volume will be boosted by deliveries of various newly launched iconic models (i.e. Lamborghini Revuelto, Rolls Royce Spectre, Ferrari Purosangue (SUV) and Daytona SP3). However, we foresee a flattish YoY revenue growth, factoring in the strength of the ringgit against the GBP, as well as c.50% deterioration in EBIT after accounting for 1QFY25 losses.

Stay OVERWEIGHT. We keep our OVERWEIGHT stance on the gaming sector, as we anticipate continued earnings recovery for GenS and GenM – and thus benefitting GenT – driven primarily by the improving tourist numbers. Our preferred pick for the sector is GenT (BUY, TP: RM7.60), which is strategically positioned to capitalise on the recovery momentum of both GenS and GenM, as well as the potential value-add from TauRx Pharmaceutical once HMTM receives FDA approval.

Source: Hong Leong Investment Bank Research - 27 Jan 2025