UOB KAY HIAN RESEARCH (MARCH 15): The gaming sector is poised to be a major market outperformer in 2022 as Malaysia officially shifts into the endemic phase, with international borders slated to reopen on April 1. Our thesis is anchored on a steep recovery, with foreigners providing a significant uplift in the gaming companies’ efforts to resurrect pre-pandemic earnings, particularly Genting Malaysia, where foreign patronage made up about 25% of Resorts World Genting’s (RWG) pre-pandemic footfall.

Prominent gross gaming revenue (GGR) recovery is in sight for the casino subsector. With the reopening of international borders, we estimate that RWG’s GGR will return to 70% to 75% of 2019’s level, led by the mass and premium mass GGR soaring to 75% to 80% of 2019’s level. RWG’s revenue is boosted by the pent-up demand from local patronage (historically accounting for >70% of RWG’s visitorship) and the recently launched Genting SkyWorlds. However, we expect a more subdued (<70% recovery) VIP segment. Coupled with an excellent recovery in its overseas operations, particularly in the US casinos, where gaming revenue has surpassed pre-pandemic levels, both Genting Malaysia and Genting Bhd are well positioned to deliver solid earnings recoveries.

Meanwhile, Resorts World New York City, by far Genting Malaysia’s largest earnings contributor in the US, will fully benefit from the opening of Hyatt Regency JFK (in August 2021) and is a strong contender for a full-fledged gaming licence in downstate New York (bidding process expected in 2H2022).

For the number forecast operators (NFOs), while sales pickup was initially slow when business resumed in mid-September 2021, ticket sales have since recovered to 80% to 85% of pre-pandemic levels. NFOs offer sustainable prospective yield of 4.4% to 6.2% from FY22 onwards, backed by earnings resilience and a stable payout ratio of 80% to 90%. This should satisfy investors’ hunger for sustainable high-yield plays in a low interest rate environment and volatile capital market. With the broad market likely to be volatile amid interest rate hikes and inflationary pressures, risk-averse investors would be increasingly attracted to Berjaya Sports Toto’s and Magnum’s earnings resilience and high prospective yield of close to 8% in 2023. We prefer Magnum to BST for exposure in the NFO subsector, given the “hidden value” of its 6.3% stake in U-Mobile (book value: RM270 million or 11% of its market cap), which could be listing by 2022.

Maintain “overweight” on the gaming sector, with the casino subsector expected to deliver robust capital gains and significantly outperform the FBM KLCI throughout 2022. Our top picks are Genting Malaysia and Magnum. The outperformance will eventually filter down to smaller-cap reopening beneficiaries such as RGB International Bhd (“buy”, 15 sen target price).

Kimlun Corp Bhd

Target price: RM1.02 BUY

HONG LEONG INVESTMENT BANK RESEARCH (MARCH 15): Kimlun’s FY21 earnings missed expectations. The results shortfall was attributed to weak ramp-up in 4Q for its construction division, made worse by a reversal in property sales.

Recovery prospects for FY22 should be intact, underpinned by its RM2.1 billion total order book (RM1.7 billion construction + RM400 million manufacturing). Kimlun is targeting RM500 million to RM700 million contract replenishment in 2022 based on previous guidance. Replenishment opportunities could come from Pan Borneo Highway Sarawak Phase 2, Kuching autonomous rail transit, hospitals, private-sector buildings and the Johor-Singapore Rapid Transit System (RTS). The vaccinated travel lane with Singapore should aid the recovery of private-sector opportunities, which bodes well for local players like Kimlun. The company also stands as a beneficiary of MRT3 given its track record in supplying precast products to MRT1 and MRT2.

Maintain “buy”, with an unchanged target price of RM1.02 based on eight times FY22 earnings. The stock currently trades at an attractive 5.8 times FY22 PER and 0.36 times book. Risk reward looks attractive at this juncture. Key risks include high material prices, slow job rollout and labour shortages.

Sunway REIT

Target price: RM1.66 BUY

AMINVESTMENT BANK RESEARCH (MARCH 14): We maintain our “buy” call on Sunway REIT, with an unchanged fair value of RM1.66 after changing our valuation methodology to the discount dividend model (DDM) from a targeted distribution yield of 5% over FY23 distribution income.

The group is actively scouting for quality assets in both the services and industrial segments. We expect acquisitions to take place from FY23 onwards owing to the ongoing asset enhancement at Sunway Carnival Shopping Mall and Sunway Resort Hotel and the focus on post-pandemic recovery with the reopening of international borders.

Its debt-to-asset ratio has improved 3.5 percentage points year on year to 37.2%, below the 60% regulatory threshold. There is sufficient capacity to fund future acquisitions with additional borrowings. Sunway REIT is our top pick in the REIT sector, underpinned by the diversified investment portfolio, which encompasses retail malls, hotels, offices, a university and hospitals that spread across Malaysia; strong occupancy rates which exceed 90% in retail assets; and stable rental income from the services and industrial segments. Downside risks include further negative yield spread, lower-than-expected tenancy renewal rates and weaker-than-expected occupancy rates.

Tiong Nam Logistics Holdings Bhd

Target price: RM1.05 BUY

TA SECURITIES (MARCH 14): Tiong Nam’s FY22-23 earnings outlook can be highly unpredictable with a confluence of macro and geopolitical events. After our conversation with management, we are optimistic as the seemingly high-risk Russia-Ukraine war could be mildly positive for Tiong Nam, which would see sustained strong demand for warehousing space to pre-empt global supply shock if the war prolongs. Although Tiong Nam’s warehouses largely cater for the storage of finished products, it received an enquiry recently for a new warehouse for storage of raw materials.

The full reopening of borders from April 1 will bode well for Tiong Nam’s logistics division. The impact of surging oil prices can be offset by robust demand. According to management, the group recently raised logistics fare by an average 10% to mitigate the impact of rising maintenance costs for its transportation vehicles.

We maintain our sum-of-parts valuation of RM1.05, which implies a 30% discount to its NTA of RM1.50 per share — reasonable considering that Tiong Nam is still toying with the idea of setting up a warehouse REIT, which has been delayed since 2015. Maintain “buy”.