Genting’s price went down on Monday, registering the highest slump to date in the value of the property. The events were occasioned by a mulled new tax increase, which will affect the territory
Genting Malaysia Price Drop to Unprecedented Lows
On November 5, Genting Malaysia’s price went down the staggering 27-30%, which had been the biggest drop in the price of the stock since the property first listed on the stock exchange almost over 30 years ago.
The news occasioning the drastic slump were occasioned by a new mulled tax hike which will take place in Malaysia and affect the gambling industry in full. The tax will be calculated based on gross revenue, which will likely bring up the price of annual fees and duties, possibly leading to a smaller sector overall.
The events leading to this drastic top began with Malaysian Minister of Finance Lim Guan Eng make a speech on the budget on November 2, outlining a scenario in which annual license fees will rise to $36 million from their current $29 million-levels.
While this seemed to be a moderate change all things considered, the biggest problem came from the newly announced tax hike, which will have all gross revenue from gaming be taxed at a rate of 35%, which is over a 200% increase on the current 10%.
Genting Malaysia’s shares clearly slumped losing the bulk of their value, dragging Genting Bhd in their wake as well. Genting Bhd is the parent company of the casino complex, which also lost 12% of the total value of stock.
Genting’s Loss, Bad but Expected
The events of the past few days are definitely not auspicious for the company, but they were anticipated. Mr. Lim’s announcement was expected and rumors had been swirling that it would affect the Genting property both locally and internationally.
However, the forecasts originally put the mulled increase at 5% as opposed to the staggering 35% hike. Even the talks about introducing a minimum tax hike affected the shares last month when they dropped by nearly 10%.
In light of the announced changes in taxation, Genting now has to deal with its rating, which has been relegated from Buy by Nomura, a Japanese credit-rating agency and analyst.
Until the announcement was made, observers were certain that Genting would manage to withstand any alternations in the upcoming tax law. The second quarter results of the company, posted back in August, also registered a 104% jump on profit.
But having in mind the latest tax hike, Genting is far less likely to finish the quarter, or let alone the year, on a strong note.
We estimate the hike in casino and slot machine operator gaming duties could cut Genting Malaysia’s FY19/20F EPS by 24.9%-29.8% and Genting’s FY19/20F EPS by a lower 13.7%-15.7%, as Genting is a more diversified entity.
Still, the company posted slightly better results of its stock earlier on Wednesday, November 7, reporting a 3.32% gain, which may indicate an upward trend. Meanwhile, CIMB Equities Research expressed hopes that the rich portfolio of the company will help it withstand this.
According to CIMB Equities Research, Genting is a diversified company that can cope with shocks across key segments.