MY Morning Wrap | Foreign Shareholders Expected to Benefit from Gaming Sector

U.S. stocks were maintaining their upward momentum Tuesday, with the S&P 500 index just shy of its record as investors keep cheering the chances of Federal Reserve rate cuts next year and an economy that keeps chugging.

The banking sector is expected to post robust net profit growth in the final quarter of 2023. This is supported by the absence of prosperity tax, resilient loans growth, and benevolent treasury market conditions, Hong Leong Investment Bank (HLIB) Research says. However, the brokerage argued that the outlook for the first half of 2024 would likely be muted due to continued net interest margin (NIM) compression, the tapering growth of non-interest income (NOII) and lack of non-cash charge (NCC) write-backs. Overall, HLIB Research expected the sector's earnings growth to slow to 5% in 2024 against 14% in 2023. The sector's return-to-equity ratio was also seen narrowing 10 basis points (bps) to 9.3%, it said.

Malaysia continues to chart a strong upward trajectory in garnering investments from both global and domestic investors. UOB Research said that for the first nine months of 2023 (9M23), the country saw a 6.6% increase year-on-year (y-o-y) in terms of total committed investments to RM225bil from RM211bil previously. This involved 3,949 investment projects that are expected to create 89,495 job opportunities in the country (9M22: 2,918 projects and 99,305 jobs). The services sector (RM117.7bil or 52.3% share) continued to be the top beneficiary, followed by the manufacturing (RM99.8bil or 44.4% share) and primary (RM7.4bil or 3.3% share) sectors.

Malaysia recorded negative trade growth in November 2023 with a 2.4% decline in overall trade to RM231.79bil over the same month in 2022. In a statement, the Ministry of Investment, Trade and Industry (Miti) said exports during the month contracted 5.9% year-on-year (y-o-y) to RM122.1bil while imports grew 1.7% y-o-y to RM109.69bil. This resulted in a trade surplus of RM12.41bil for the month, which is the lowest surplus recorded since May 2020. "Malaysia's performance was in tandem with its key trading partners notably Taiwan, China and Indonesia, which posted negative trade growth in November 2023 and a drop in global imports," said Miti.

The visa-free travel narrative could boost the gaming sector earnings but not in the share price performance as it would likely be overshadowed by regional competition and cheaper regional casino stocks. However, the tourism sector is likely to benefit more from the visa-free entry in Malaysia. In terms of stock valuation, TA Research observed that the share premium of Hong Kong-listed casino stocks had narrowed to less than two times price-earnings ratio multiples above Malaysia-listed casino stocks. This would be appealing to foreign shareholders, it added. The research house said that at this juncture, it does not have a strong desire for Malaysian gaming stocks, except for Genting Bhd given its potential upside of 12.5%.