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Saturday, June 13, 2009

Gaming:Key takeaways from G2E Asia 2009

A modest G2E Asia 2009. Last week, we attended the Global Gaming Expo
(G2E) and conference Asia at the Venetian Macau. This year’s event was on a
noticeably smaller scale than the previous two years, probably the effect of poorer
economic conditions and travel concerns sparked by the recent outbreak of the
A(H1N1) flu. Visitor arrivals and participation at the conference were also less this
time around.
• Informative conference. The three-day conference addressed various gamingrelated
topics ranging from gaming operations within the region to the
opportunities and challenges faced by casino operators in the current economic
climate. All in all, we found the conference enlightening as the main topics
discussed were relevant not only to the Macau and Asian gaming industry but
also to the current economic climate. We came away from the conference still
upbeat about Macau’s long-term prospects as Asia’s premier gaming hub. But we
do acknowledge that short-term concerns such as visa restrictions and the poor
economic environment are likely to cast a cloud over the near term.
• An eye-opening expo. We drew three key conclusions from this year’s expo: i)
Although the crowd was noticeably smaller, there was still a good mix of
representation from global and regional gaming equipment manufacturers. ii) We
were pleasantly surprised by the strong emphasis on Asian-related themes and
features in most of the machines on display. iii) Electronic gaming machines
appear to be the new wave in gaming, going by their increasing presence on both
the expo floors and our site visits to several casinos.
• Maintain OVERWEIGHT. Our earnings forecasts for all gaming stocks remain
intact. We continue to OVERWEIGHT the regional gaming sector and retain our
preference for the Malaysian gaming plays. Our top pick is Resorts World (RWB)
but we also like its parent, Genting Bhd. Both stocks remain OUTPERFORMs but
with higher target prices as we now remove the discount to their SOP values to
reflect the rising risk appetite and expectations of stronger newsflow on potential
regional M&As following the group’s subscription to MGM bonds and equity over
the past month. While we like Genting Singapore for its unique exposure to the
republic’s duopolistic gaming hub, we reiterate our UNDERPERFORM call due to
its expensive valuations. We see a cheaper indirect entry into Singapore’s gaming
and tourism potential via Genting Bhd. In the regional space, Galaxy remains a
NEUTRAL as many of the impending short-term positives have already been
priced in and there is still a risk of a medium-term funding gap. Meanwhile, we
continue to like B-Toto for the possibility of a bumper dividend. Dreamgate
remains an UNDERPERFORM with the potential de-rating catalysts being i)
lacklustre sales, ii) slower-than-expected deployment of its machines, iii) further
margin compression, and iii) more delays in the take-off of its maiden casino

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