Only World Group Holdings Bhd
(Nov 18, 54.5 sen)
Maintain hold with a lower fair value (FV) of 56 sen: We maintained our “hold” recommendation on Only World Group Holdings Bhd (OWG) with a lower FV of 56 sen per share versus 64 sen per share previously. Our valuation is based on a price-earnings ratio of 16.5 times financial year 2021 (FY21) earnings per share. We have cut our earnings forecasts for FY20, FY21 and FY22 by 54%, 13% and 13% respectively.

 
Key upside risks to OWG include a higher-than-expected increase in visitors at The Top in Komtar Tower, Penang; a surge in foreign tourists; and an early opening of the outdoor theme park at Resorts World Genting (RWG).

OWG’s first quarter of financial year 2020 (1QFY20) core net profit of RM73,000 missed our and street’s earnings expectations, accounting for 1.6% and 1.1% of full-year earnings forecasts respectively. The variance against our forecast was largely due to a high tax of 89.8%, a high cost of sales and selling, and distribution expenses.

Key highlights of OWG’s 1QFY20 results include its top line up 2.2% year-on-year (y-o-y) to RM33.7 million on improvements in its food service operations (FSO) and retail services. This was mainly due to an increased footfall at its Genting operations. The Skytropolis Funland indoor theme park at RWG opened in December 2018. We believe OWG’s operations also benefited from an increase in patrons during the long public holidays on three weekends in September.

OWG’s FSO segment’s revenue climbed 8.5% y-o-y to RM18.3 million for 1QFY20, versus 1QFY19’s RM16.8 million, due to the higher footfall in Genting Highlands and a new FSO opening at Bangsar Shopping Centre in May 2019. We believe OWG’s operations at RWG would still see an improvement due to the indoor theme park’s recent opening and the outdoor theme park slated to open in the third quarter of 2020.

OWG’s family attraction segment’s revenue dropped 32.7% y-o-y to RM10.1 million, versus RM15 million previously, due to a lower volume of business at The Top and Kota Tinggi Resorts’ closure in 3QFY19. We believe The Top would still be a drag on the group’s profitability due to its high fixed costs and weak volume of business.

OWG’s other services operations’ revenue rose 30.1% y-o-y to RM5.4 million for 1QFY20, against 1QFY19’s RM4.1 million, due to contributions from its 10 retail outlets in Genting Highlands and Bangsar Shopping Centre, opened in 2QFY19.

OWG’s effective tax rate was high at 89.8% as the group incurred some non-tax deductible expenses. Also, there were losses incurred by certain subsidiary companies, which could not be set off against taxable profits in other companies within the group.

OWG is currently operating over 20 FSOs and more than 15 family attractions and other services at RWG. Recall that Genting Malaysia Bhd’s outdoor theme park will utilise Fox and non-Fox intellectual properties after the settlement agreement with 21st Century Fox and The Walt Disney Company. Therefore, we believe OWG’s performance will improve in FY21 and FY22. However, we believe earnings contribution from OWG’s operations at RWG will be partly offset by its operations at The Top. — AmInvestment Bank, Nov 18