• OWG’s KOMTAR operations posted an underwhelming performance while its Genting operations remain the bright spot. We lower our FV in tandem with trimmed earnings, off more conservative margin assumptions. Maintain HOLD recommendation with a lower fair value of RM1.33/share (from RM1.66/share) based on a PE of 16.5x CY18F EPS, which is close to the average of its peers.

• OWG posted 4QFY17 earnings of RM0.7mil (QoQ: -38%; YoY: -45%) bringing the full-year FY17 earnings to RM5.8mil (YoY: -54%). We deem the results to be below our and consensus expectations at 78% and 68% of fullyear estimates respectively.

• No dividend was declared as expected.

• Topline for FY17 grew 23% or RM22mil. Growth was primarily driven by OWG’s landmark asset, THE TOP@KOMTAR. It accounted for RM17.3mil in incremental revenue contribution. The remainder of incremental growth was an equal split between OWG’s 3 newly launched (Dec 2016) food services outlets at Genting and greater revenue off existing amusement outlets.

• FY17 PBT margins contracted 11.0 ppts YoY as PBT earnings contracted plunged 37% or RM9.2mil against:- i. start-up cost of food service outlets and amusements outlets at KOMTAR, amounting to RM4.3mil; ii. depreciation charges of RM6.8mil related to KOMTAR; iii. higher financing charges amounting to RM2.2mil; iv. offsetting factors included RM3.5mil in profit arising from its 11 new food service outlets in Skyway Avenue, Genting (2) and KOMTAR (9).

• We lower our estimates in tandem with more conservative margin assumptions. Correspondingly, our FY18F-FY19F earnings are lowered by 16% and 18% respectively. We also take this opportunity to introduce FY20F earnings. Key risks to OWG include a decline in international tourists and a delay in the opening of Twentieth Century Fox World theme park in Genting.

• While we like OWG for its exciting growth prospects ahead, the multiple moving parts tied to various assets including KOMTAR clouds our visibility on earnings. Instead, we prefer for the actualization of its Genting attractions in late-FY18F as key to a rerating in valuations.

Source: AmInvest Research - 29 Aug 2017