Investment Highlights

• OWG’s 1QFY19 earnings disappointed as topline growth came in lower than expected and its operations at Resorts World Genting incurred a higher depreciation charge. We have cut our earnings forecast for FY19F, FY20F and FY21F by 53%, 46% and 46% respectively to account for a lower topline growth, higher finance costs and depreciation costs.

• In spite of this, we are raising our call from a HOLD to BUY with an FV of RM0.74 as we roll over our valuation to FY20F EPS based on a PE of 16.5x. We believe the FY20F prospects are strong, underpinned by the opening of 20th Century Fox World.
• 1QFY19 net profit missed our expectations, accounting for only 4% and 5% of our and street’s full-year forecasts respectively. The variance against our forecast came from a lower-than-expected topline growth and surge in finance and depreciation costs.
• Key highlights of OWG’s 1QFY19 results include:

1. 1QFY19 topline grew 9.3% YoY on the back of higher growth across all its divisions. This was contributed by aggressive promotion initiatives and the positive impact from the tax holiday period. However, we believe this was offset by a decline in the number of foreign tourists.

2. The food services outlet (FSO) segment rose 3.4% YoY although its operating margins fell 2.5ppts. We believe the addition of 6 new FSOs in Genting assisted in the improvement. The lower margin was due to higher raw material cost and rental cost for its Genting operations.

3. The family attraction segment expanded 13.0% while EBITDA margin improved correspondingly by 2.1ppts. This was due to the impact of the opening of 4 new family attractions at SkyAvenue in Genting Highlands and 2 new family attractions at the TOP, Komtar Tower, Penang since February 2018.

4. Overall EBITDA climbed 10.7% while EBITDA margin improved marginally by 0.3ppt. However, OWG’s PATAMI was hit by a 26.3% increase in depreciations costs as well a doubling of its financing cost. The higher depreciation charge was due to the opening of additional outlets in Adventure Land, Resorts World Genting.

• We believe OWG will see improvements in its operations in Genting in the upcoming quarters stemming from the expected opening of Genting’s indoor theme park by end-2018. We also anticipate that the opening of 20th Century Fox World theme park in Genting by 2HCY19 will drive foot traffic, resulting in a tremendous spillover effect on OWG’s FSO and family attraction operations in Genting which currently contributes circa 40% to its bottom line.

• We like OWG for its exciting growth prospects and consumer-driven theme, but remain cautious over the uncertainty surrounding the actualization of 20th Century Fox World theme park. Key risks to OWG include a decline in visitors and a delay in the opening of 20th Century Fox World theme park in Genting.

Source: AmInvest Research - 26 Nov 2018