• OWG has proposed a private placement of ordinary shares up to 10% of its issued share capital. Below are the details to the private placement:
  - Pricing — Issue price of the placement will be determined and fixed by the board at a future date. The placement shares will be priced at the very least 10% discount to the 5-day volume weighted average market price (VWAP);
  - Timeline for completion of private placement exercise — The proposed private placement is expected to be completed by 3QCY17, barring any unforeseen circumstances;
  - Utilization of proceeds timeline — Proceeds for the purpose of business expansion and working capital requirements are expected to be utilised within 24 months.
   
• Comment: We gather that the 4 family attractions are aimed for completion by end-CY17 or 2QFY18. Meanwhile, the FSOs (food and services outlets) are targeted to commence operations in 2QCY18 or 4QFY18. Both are timed for the opening of Twentieth Century Fox World Theme Park in 2018.
   
• Utilisation of proceeds — Pricing has yet to be determined. Based on an illustrative issue price of RM1.52/share, OWG may raise up to RM36.9mil.
  - 68% or RM25mil will be channelled to OWGs business expansion. Business expansion proceeds will be used to launch at least 3 new food service outlets (FSO) and 4 new family attractions;
  - 30% or RM11.1mil will be employed for working capital requirements;
  - 2% or RM0.8mil is estimated for expenses arising from the proposed private placement.
   
• Comment: We understand that OWG have been allocated 70,000 sq ft of indoor space to house its 4 planned family attractions. It is double the initial allocation of 35,000 sq ft held by OWG previously. Its 2 family attractions, Haunted House and RIPLEY’s Believe It Or Not, ceased operations back in Jan 2017 to give way to Genting Integrated Tourism Plan (GITP) renovation works. OWG now expects to operate 4 family attractions given it now has twice the initial floor space. Alongside the ceased 2 family attractions, OWG had to shut down 12 FSOs and retail outlets in Jan 2017 as well. This time round, OWG operations appear leaner with an indicative minimum of 3 replacement FSOs instead. We are not surprised with the lower FSOs given that OWG’s key strength lies in its family attractions coupled with the stiff F&B competition within GITP’s new mall (Sky Avenue) (Exhibit 1).
   
• Comment on balance sheet impact: We are positive on the private placement as it would cushion our projected elevated gearing, ranging between 47% and 58% for FY18F-FY19F. With the placement, gearing should decline to a more robust 27%-45%.

• Comment on EPS impact: Should the placement be successful, EPS is expected to be diluted by 5% given the corresponding 10% enlargement in its share base but partially offset by interest savings. Consequently, our indicative fair value would be RM1.59/share.

• The proposed private placement was within our expectations. We maintain our HOLD recommendation and fair value of RM1.66/share. Our indicative fair value post EPS dilution is RM1.59/share. Our fair value is based on a PE of 16.5x on CY18F EPS, which is close to the average of its peers. We like OWG for its highly prospective Komtar and Genting operations to drive 3-year CAGR growth of 36%, suggesting PE-to-growth of 0.6x. However, we prefer further visibility of execution before we consider a rerating.

Source: AmInvest Research - 10 Jul 2017