Investment Highlights

• We maintain our HOLD recommendation on Only World Group (OWG) with a lower fair value of RM0.55/share. Our valuation is based on a PE of 16.5x FY21EPS.

• We have lowered our FY20F earnings forecast to a net loss of RM0.8mil from a net profit of RM2.5mil as we expect the group to be hit by the impact of the Covid-19 outbreak and lower patronage during the fasting month. We cut our FY21F–FY22F earnings forecasts by around 2% each.

• 1HFY20 core net profit of RM2.9mil was above expectations coming in at 117% and 103% of our and street’s full-year earnings forecast. The variance against our forecast was largely due to better-than-expected patronage in 2QFY20 in its Genting operations.

• Key highlights of OWG’s 1HFY20 results include:

• OWG’s 1HFY20 top line grew 6.6% YoY to RM70.8mil on the back of improvements in its food service operations (FSO) and retail services. This was mainly due to the increased footfall at its Genting operations. Skytropolis Funland (Resorts World Genting’s indoor themepark) opened in December 2018.

• We believe OWG’s operations also benefitted from an increase in patrons during the long school holidays and festive season as the group rolled out aggressive promotions.

• OWG’s FSO segment revenue climbed 26.3% YoY to RM48.3mil in 1HFY20 due to the higher footfall in Genting Highlands and the opening of a new FSO at Bangsar Shopping Centre in May 2019.

• Although the group could benefit from the upcoming opening of the outdoor theme park, which is slated for 2HFY20, we believe that OWG’s near-term operations at Resorts World Genting will be negatively affected by the Covid-19 outbreak.

• According to The Edge Financial Daily, president of the Malaysian Association of Amusement Theme Park & Family Attractions (Maatfa) Tan Sri Richard Koh said the visitorship in January, post-Chinese New Year dropped by 28% and that in the first 20 days of February, patronage tumbled by 80%. Hence, we expect OWG’s FSOs in Genting to be hit by low sales and high fixed costs.

Source: AmInvest Research - 24 Feb 2020