Investment Highlights

• We maintain our HOLD recommendation on Only World Group (OWG) with a lower fair value of RM0.64. Our valuation is based on a PE of 16.5x FY21F EPS.

• We have cut our earnings forecast for FY20F and 21F by 9.7% and 8.2% respectively, and we introduce FY22F forecast. Key upside risks to OWG include higher-thanexpected increase in visitors in The Top, Komtar, a rise in foreign tourists and early opening of the outdoor theme park at Resorts World Genting.

• FY19 core net loss of RM10.7mil was higher than our and street’s full-year estimates of loss after tax of RM5.4mil— RM4.8mil respectively. The variance against our forecast is due to lower-than-expected sales.

• OWG’s FY19 revenue of RM123.8mil fell 3.0% YoY. The food service operations (FSO) segment recorded revenue of RM64.3mil (+14.1% YoY) on the back of the newly opened Skytropolis Funland Indoor Theme Park at Sky Avenue, Genting Highlands. OWG also opened a new FSO at Bangsar Shopping Centre in May 2019.

• OWG’s family attractions segment saw a drop in revenue to RM42.1mil (-29.6% YoY) in FY19 due to a lower volume of business at The Top, Komtar Tower and closure of Kota Tinggi Resorts in 3QFY19.

• OWG’s other service operations revenue increased 20.5% YoY to RM17.4mil in FY19 underpinned by the opening of three new retail outlets at Sky Avenue, Resorts World Genting and a Jungle Gym at Bangsar Shopping Centre in 4QFY19.

• Excluding impairments of goodwill and PPE of RM4.5mil, OWG’s 4QFY19 core EBITDA came to RM22.3mil (-43.4% YoY) while its core EBITDA margin dropped 12.9ppts YoY to 14.4%.

• OWG is currently operating over 20 FSOs and more than 15 family attractions at Resorts World Genting. Recall that Genting Malaysia’s outdoor theme park will utilize both 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 FY20F and FY21F.

• On a negative note, we believe that earnings contribution from OWG’s operations at Resorts World Genting will be partly offset by The Top, Komtar Tower. We think that business volume at Komtar would continue to be weak, dragged by lower tourist arrivals in Malaysia. Also, fixed costs at Komtar are high.

Source: AmInvest Research - 30 Aug 2019