Malaysian officials hinted last week at possibly raising taxes in an effort to reverse a shrinking government bank account. The last time gaming taxes changed in the country was in 1998 when they increased from 22% to 25%, so a 20-year update is not out of the question. However, any increase, if it comes, won’t be a problem for at least one casino in the country, according to market analysts.
Two analysis firms, Maybank Kim Eng Research and Nomura International, said in research notes this week that Genting Malaysia is in a strong enough position that an increase won’t seriously impact its bottom line. They both alluded to the fact the markets typically factor in price increases as they prepare their forecasts.
After word started circulating that taxes might increase, Genting, which operates Resorts World Genting in Malaysia, almost immediately saw a negative impact. Markets showed that the company’s stock dipped by 9% since the beginning of October.
Nomura indicated in its note that the company’s earnings will more than likely continue to grow, even if a new tax structure is introduced to the gaming industry by the government. It added that the recent price dip was a response only to the rumor of a possible tax increase and didn’t consider the revenue growth potential of the company.
The stockbroker’s analysts further indicated that Genting’s new attractions will help boost its business, leading to wider profit margins in 2019. They predict that the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) will grow, as well.
They explained, “Given Genting Malaysia’s share price correction of 9 percent since the beginning of October (versus the Kuala Lumpur Composite Index’s 1.9 percent decline), we believe the market has already more than factored-in the bear case scenario of a 5 percentage point increase in gaming tax.”
Some of the new attractions referred to in the Nomura note include new facilities at Resorts World Genting that expand its capacity. The resort is also expected to open two theme parks—20th Century Fox World and Skytropolis—during the first six months of 2019. The project will ultimately see an additional 1,500 hotel rooms, new recreational facilities and new dining options.
Maybank echoed the Nomura sentiment, agreeing that the price fluctuation was due to the tax announcement. Maybank’s Samuel Yin Shao Yang further stated, “While this risk cannot be discounted, we gather that the market is imputing an overly onerous casino tax hike of eight to 10 percentage points.”
Yin added, “We estimate third-quarter 2018 group EBITDA of about MYR700 million [US$168.42 million], or 50 percent [growth] year-on-year.”