The Philippines is the place to be for gaming industry investors, according to financial services firm Morgan Stanley, with favorable government policies and long-term growth potential making it a far stronger option than nearby Macau or Singapore.
In a Monday note, Morgan Stanley forecast the recent opening of Okada Manila in the city’s Entertainment City Precinct to add US$1.2 billion in GGR to the Philippines casino market by 2019, pushing total market size to around US$5 billion and surpassing Singapore as the largest entertainment market in ASEAN.
“On top of what happened in Macau and Las Vegas, which were driven by supply and infrastructure, the Philippines has favorable policies (allowance of junkets, proxy betting and so on) and strong tourist arrivals to drive foreigners’ revenue,” said analysts Alex Poon and Praveen Choudhary.
“We expect longer-term sustainability of market growth in the Philippines as it is at an early stage of development, unlike Macau which has lower visibility and is sensitive to China regulations.
“This, together with an improving balance sheet and returns, and a potential for dividends, have resulted in a more favorable risk and reward profile in our view, such that the stocks could re-rate.”
Morgan Stanley singles out Bloomberry Resorts, which operates Solaire Resort & Casino, as its top pick with stock prices having rallied by 55% so far in 2017 on the back of a massive 40% year-on-year increase in gross gaming revenue for 1Q.
It also rates Melco Resorts as overweight, driven by attractive valuations of 6x EV/EBITDA 2018 and around 30% EBITDA CAGR in 2016-18, however, “We see more upside for Bloomberry even in the longer term, attributable to a stronger balance sheet and cash flows with potential dividends, and a larger land bank for future expansion.”
Travellers has been downgraded to underweight given Resorts World Manila’s ongoing gaming license suspension stemming from the 2 June attack that claimed 38 lives.
