Investment Highlights

• We maintain our HOLD call on Only World Group (OWG) with a lower FV of RM0.56 (RM0.58 previously). We raise OWG’s net profit forecast for FY19F by 111% but slightly tweaked its FY20F and FY21F forecasts by 1.1% and 1.8% respectively to account for lower sales growth in its family attractions segment as well as lower overall EBITDA margins.

• OWG’s 1HFY19 surprised on the upside as it registered a net profit of RM12.2mil, almost double of our and street’s full year estimates accounting for 164.5% and 169.6% respectively.

• Key highlights of OWG’s 2QFY19 results included:

• OWG recognized its deferred taxation derived from the Investment Tax Allowance (ITA) granted by MIDA which boosted net profit by RM11.0mil. However, we believe its tax expense would return to normal by 4QFY19.

• 1HFY19’s topline improved 6.6% to RM66.4mil due to a higher growth in its food service operations (FSO) but slightly dragged by its family attractions operations (FA).

• Its FSO segment’s revenue increased 3.7% to RM31.7mil mainly on the back of the opening of Genting’s indoor theme park in December 2018. Operating margins also improved 6.3ppts to 20.0%.

• However, the FA segment’s topline decreased by 7.6% to RM26.4mil mainly due to a lower business volume at The Top, Komtar Tower, Penang. Operating margins also declined by 18.4ppts to 60.5%

• Overall EBITDA dropped 1.2% to RM17.3mil while EBITDA margin fell 2.1ppts to 26.0% as it was dragged by the FA operations.

• For FY20F, earnings growth remains cloudy on the uncertainty surrounding Genting’s outdoor theme park actualisation that was expected to improve visitor numbers. However, we believe the recent opening of Genting’s indoor theme park, Skytropolis Funland, will boost foot traffic and promote sales growth.

• Key risks to OWG include decline in visitors, decline in foreign tourists and cancellation of the outdoor theme park in Genting.

Source: AmInvest Research - 27 Feb 2019