§ NFOs Pool Betting Duty (PBD) increased from 6% to 8%.
§ Genting Malaysia acquires UK casino operations from Genting Singapore for £340m cash.
§ Depending on whether the NFOs are allowed to transfer the higher cost via lower prize payout, impact could be directly on margin (additional PBD costs) or turnover (transfer additional cost to lower prize money resulting in loss of market share to illegals as the latter has no precedence in reducing prize money).
§ In either case, consensus net profit of NFOs will be adversely impacted, ranging from 3-13%. Among the NFOs, Tanjong will be least affected (3-4.5%) while the impact on B-Toto and MPHB could be at least doubled Tanjong’s impact.
§ The hike in PBD may raise concerns about potential hike in casino gaming tax. For every 1%-point hike, Genting Malaysia and Genting’s consensus net profit would be eroded by 2.7-2.9% and 1% respectively.
§ Previous hike (2003) in casino gaming tax was 5%-point. Assuming the same magnitude, Genting Malaysia and Genting’s consensus net profit would be eroded by 14% and 5% respectively.
§ Will reduce competitiveness to attract high rollers or foreign fund inflows.
§ As for Genting Malaysia’s acquisition, it would erode consensus earnings by circa 3% due to the low level of profitability of the UK casino operations. Marginal impact on Genting as it holds circa similar stake in both the purchaser and vendor.
§ To mitigate the impact of the PBD hike and assuming NFOs are allowed to transfer the higher cost via lower prize money. The best way to mitigate competition from illegals is to reduce prize monies except for the top prize.
§ NFOs will suffer from lower earnings and uncertainties above potentially more hikes.
§ Genting Malaysia – Investors likely to prefer better cash utilization or higher dividend. Untimely deal given expectations of adverse impact on earnings arising from increased competition by the two newly operational integrated resorts in Singapore.
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