GENTING & GENM: Hit by Increased Gaming Tax

The announced Budget for 2019 include increase in gaming tax for casino from 25% to 35%. The last increase in gaming tax for casino was in 1998. In an article in 2016, The Edge entitled "Is Gaming Tax Next to Go Up" an analyst from HLIB opined that a 1%-increase in gaming tax will lower earnings by3% for GENM and 1% for Genting. Thus it is not unreasonable to project that the proposed 10%-increase will lead to a 30%-drop in earnings for GENM and 10% for Genting.

The drop in share price for Genting from RM7.20 to an intra-day low of RM6.35 is about 12%. That nearly mirrors the expected decline in earning of 10%. Its immediate support is at RM6.50.

Chart 1: Genting's monthly chart as at Nov 2, 2018_9.30am (Source: Malaysiastock.biz)

Similarly, the drop in share price for GenM from RM4.54 to an intra-day low of RM3.18 is 30%. That nearly mirrors the expected decline in earning of 30%. Its immediate support is at RM3.30.

Chart 2: GenM's monthly chart as at Nov 2, 2018_9.30am (Source: Malaysiastock.biz)

The trading of these 2 stocks will be very volatile in the next 1-2 days. If you are looking to invest for long-term, you can do so gradually. This huge increase in gaming tax took 20 years to land. It will take another 20 years for the next increase to take place. Thus, this may be a good opportunity to buy into a good growth stock. I believe either one of these stocks are good. However the bigger bang may come from GenM since its Genting Integrated Tourism Plan is expected to be completed in 1H2019 (including the Twentieth Century Fox Theme Park which will be ready in 2Q2019). Good luck.