• We initiate coverage on Only World Group Holdings (OWG) with a HOLD recommendation and fair value of RM1.66/share. Our fair value is based on a PE of 16.5x on CY18F EPS, which is close to the average of its peers.

• OWG’s PE-to-growth of 0.6x suggests value relative to its peers (1.5x). However, we prefer for greater clarity over top-line and bottom-line growth as its attractions unfolds going into FY18 before we consider a rerating.

• OWG’s Komtar project is firmly entrenched in the heart of Penang, conveniently located within the vicinity of large captive tourist hotspots. It offers an integrated entertainment attraction for families, including a complete ecosystem of F&B and retail stores. Aside from channelling traffic from tour agencies, management looks to optimise its pricing strategy to maximise receipts. We are excited as it addresses what we perceive to be affordability issues. We forecast OWG’s Komtar revenue to grow exponentially over FY17F-FY19F in tandem with the gestation period of The Top@Komtar.

• Genting Malaysia’s RM10.4bil investment into its Genting Integrated Tourism Plan (GITP) is expected to drive OWG’s Genting operations to new heights. We expect OWG’s expansion to peak in tandem with GITP’s cornerstone development, Twentieth Century Fox World theme park.

• Leveraging its experience operating in Genting, we expect increased OWG operated family attractions and food service outlets, and additional visitor volume to drive its top line going forward. We expect OWG’s aggressive expansion phase to tail off by FY19F, before a step change in revenue growth emerges.

• We do not expect any dividend payouts as OWG undergoes an aggressive expansion phase. Meanwhile, gearing remains elevated. We opine OWG may pursue further fund raising to cushion its balance sheet as its assets gestate over the incoming years.

• Key risks to OWG include decline in international tourists, heightened competition in Genting and execution issues.

Source: AmInvest Research - 7 Jul 2017