Petaling Jaya: The absence of a tax hike for the gaming sector under Budget 2009 has left market observers positively surprised.
HwangDBS Vickers Research said the market had been anticipating a tax hike for the gaming sector, especially due to the underperformance of Resorts World Bhd, Genting Bhd and Berjaya Sports Toto Bhd versus the KL Composite Index over the past month.
“The Government laid out plans to reduce the budget deficit to 3.6% in 2009 from 4.8% this year via cost control and higher revenue, mainly from higher petroleum income tax.
“There was no specific mention of raising gaming taxes,” it said in a post-Budget 2009 review note yesterday.
HwangDBS said Resorts World was its top pick due to its strong earnings track record, capital management initiatives and growing cash pile of more than RM4bil which allowed for potential mergers and acquisition in high growth markets.
The brokerage said it preferred Resorts World to Genting as the latter might be susceptible to, among others, continued weakness in its British gaming operations due to regulatory changes and slower consumer spending, potential delay/cost overruns at Resorts World at Sentosa and uncertainties over independent power producer windfall tax/power purchase agreement renegotiation.
The tax for number forecast operators (NFOs) was increased from 7% to 8% of gross revenue while the tax for casinos was raised from a 2%-25% range to a fixed 25% of gross revenue in 1998. The present tax rate for Malaysian casinos is the second highest in Asia after Macau’s 39%.
HwangDBS estimates that the Government’s annual take from gaming to be about RM2.6bil in 2007 or 2% of the Government’s total revenue. It believes that a higher gaming tax could reduce the price payout of NFOs, encouraging a switch to illegal operators.
AmResearch, which is also upbeat on the gaming sector, opined that gaming stocks should draw fresh attention given the absence of higher gaming tax and casino duties.
“We remain favourable on Resorts World and Genting, which saw a sentiment-driven push in their share prices last Friday,” it said in a note yesterday.
It added, however, that there was still a possibility that the Government may only announced a hike in gaming tax post-budget.