Genting’s online gaming positive for long term

GENTING Bhd’s venture into online gaming highlights the company’s pro-active stance in diversifying and expanding its income base, said OSK Investment Bank Research.

Genting’s unit Genting International Ltd has become the first to venture into online gaming after obtaining approval from Singapore Exchange Securities Trading last Thursday.

The company had said the approval would pave the way for its subsidiary Genting Stanley Alderney Ltd to apply for an online gaming licence in Alderney (British Channel Islands) and/or the United Kingdom (UK) from the Alderney Gambling Control Commission.

OSK Research said that although the move was not expected to contribute significantly to the group, it was critical in sustaining long-term earnings momentum.

It is maintaining a buy call on Genting at RM7.65 with a target price of RM10.40.

According to the research house, online gaming has the potential to appeal to more leisure oriented consumers which will drive its future growth rather than hardcore gamblers. This is evident from the emergence and growth of simpler gambling formats targeting the mass market, especially gaming and lotto.

“For the first time, gambling products are competing with other forms of mass entertainment for consumer attention and spending,” it said.

Quoting statistics from the global market intelligence research on electronic and digital consumerism Screen Digest, OSK Research said UK consumer spending for online gambling was expected to increase from £660 million (RM4.28 billion) in 2006 to £1.6 billion in 2010.

The study also said the number of active UK clients would grow from 1.1 million in 2006 to 2.1 million in 2010.

It noted that the £730 million market size for online casino gambling indicated a penetration rate of below 2% of the UK adult population and accounted for under 7% of UK’s total gross gambling yield.

The year 2005 saw an explosion in industry consolidation with 32 transactions involving online gambling operators worth over £3 billion from nine deals valued at £200 million in 2004. Currently, there are more than 30 online casino operators in the UK.

However, OSK Research said that unfavourable tax rates might cap growth. Traditional online gaming companies incorporated in the UK are subject to a new 15% tax since April.

This rate was much higher than the 2%-3% that online gambling companies had lobbied for, and would make it very difficult for these firms to compete with offshore online gambling operators targeting the UK market, it said.

“We are unsure at this juncture if Genting Stanley Alderney Ltd will be subject to the statutory 15% tax rate on online gambling companies incorporated in the UK,” it said.
Genting added 10 sen to close at RM7.75 last Friday with about 5.55 million shares done.

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