Genting tax impact may not be as big as feared

The impact of tax and duty hikes on Genting Malaysia, that were announced in this year’s budget, may not be as bad as initially feared, local media reports, citing a report by UOB Kay Hian Research.

The brokerage said that it now expects duty for the VIP sector to be raised to 20 percent of gross gaming revenue, rather than the initially expected 35 percent, from next January onwards.

It noted the announcement during the budget had only referred to a single rate of 35 percent across the board, triggering concerns.  

“Given that the negative impact from the gaming tax hike has been fairly priced in, and with the lower-than-initially expected VIP gaming tax serving as a pleasant surprise, investors may now refocus on Genting Group’s catalysts in 2019,” the newspaper cited the brokerage as saying.

News of the tax hikes sent Genting’s share price into a tailspin, triggering its biggest one-day drop on record after the budget announcement. The company has said it will review its marketing and other expenses to cut costs to mitigate the impact of the hikes.

“We continue to expect Genting Malaysia to conduct cost-cutting measures to mitigate the impact of the tax hike. “However, we have revised down our assumption of the annual 2019-2020 cost cut from RM200mil (about 3 percent of the total cost of the Malaysian operations) to RM100mil,” it said.

It noted that a 20 percent VIP gaming tax should not force Genting Malaysia to cut costs as severely as originally expected, and instead, encourage the group to expand its non-gaming and non-core related ventures.