GGRAsia – Casino tax hike to hurt GEN Malaysia: analysts

Casino tax hike to hurt GEN Malaysia: analysts

Nov 05, 2018 Newsdesk Latest News, Rest of Asia, Top of the deck

The announcement of the Malaysian Budget on Friday was a negative surprise for that country’s gaming sector, as casinos and slot parlours were not spared from a tax hike.

According to the government’s budget, the casino licence fee will be increased from MYR120 million (US$28.8 million) to MYR150 million per year, while the casino duty rate will be raised to 35 percent from 25 percent of gross gaming revenue (GGR). Gaming machine duties are to be increased from 20 percent to 30 percent on gross collection.

Investment analysts covering the Malaysia gaming sector said previously that investors had priced in any increase to the country’s gaming tax, but they were not expecting such a sharp increase as announced by Malaysia’s finance minister on Friday. Taxes on gaming have been unchanged since 1998, when the rate increased from 22 percent to 25 percent.

“The casino license fee and duty rate hike are the largest on record,” said analyst Samuel Yin Shao Yang of Maybank Kim Eng Research.

“The new casino duty rate of 35 percent, effective sales and service tax of 3.7 percent and corporate tax rate of 24 percent, ‘crowns’ Resorts World Genting as the heaviest taxed casino in Asia,” Mr Yin added in a Sunday note. “Macau casinos are also taxed at 39 percent of gross gaming revenue but they are exempted from corporate tax”.

Genting Malaysia – part of Malaysian conglomerate Genting Bhd – runs Resorts World Genting (pictured), Malaysia’s only casino resort, and operates casinos in the United States, the Bahamas and the United Kingdom.

Japanese brokerage Nomura said it believed the 10 percentage point increase in Malaysia gaming tax – along with other tax increases such as annual license fees and dealer licensing – “are extremely punitive, and diminish the investment appeal of the gaming sector”.

“We estimate a MYR600 million to MYR700 million impact on Genting Malaysia earnings before interest, taxation, depreciation and amortisation [EBITDA] and net income for fiscal years 2019 and 2020, which would offset a big chunk of the earnings growth expected from Genting’s substantial capital expenditure into new capacity over the past five years,” wrote analysts Tushar Mohata and Rahul Dohare in a note on Sunday.

Maybank’s Mr Yin said his institution estimates that the casino license fee and duty rate hike announced by the government will cut Resorts World Genting’s EBITDA margins by 9 percentage points to 25 percent to 26 percent. Maybank cut Genting Malaysia’s earning estimates for fiscal years 2019 and 2020 by respectively 32 percent and 29 percent.

Both stockbrokers said parent Genting Bhd would absorb better the tax hike due to its diversified business model and contribution from Genting Singapore Ltd, operator of the Resorts World Sentosa.

Genting Bhd “diversified business model, relatively resilient earnings contribution from Singapore, along with its recent [share price] correction, means that the earnings impact on Genting [Bhd] should be less than on subsidiary Genting Malaysia,” noted the Nomura team.