Investment Highlights

• OWG’s FSO segment disappoints as its Genting replacement assets gestate slower-than-expected. Maintain HOLD recommendation with a lower fair value of RM1.24/share (from RM1.33/share) based on a PE of 16.5x CY18F EPS, which is close to the average of its peers.

• OWG’s 1QFY18 earnings grew to RM2.2mil (QoQ: RM0.7mil; YoY: RM1.3mil) off a revenue of RM30.1mil (QoQ: 5.9%; YoY: 12.4%). We deem the results to be below our and consensus expectations at 16% and 14% of full-year estimates respectively.

• No dividend was declared as expected.

• The Top@Komtar drove revenue for the quarter up a staggering 86% YoY. Apart from the 14 new family attractions established in Dec 2016, attractive promotional initiatives further boosted QoQ sales. Accordingly, EBIT margins for the segment spiked to 68% (vs. 1QFY17: 27%). The amusement and recreation segment is likely to be the growth engine in the near term, with contributions consisting 44% of revenue (vs. 1QFY17: 25%).

• We expect the The Top@Komtar to post robust results now that it is more established with pricing finding a sweet spot. Apart from that, OWG’s elite social club, The Tower Club, commencing operations in Aug 2017, should incrementally boost revenue too. It should comfortably weather the flash floods that hit Penang recently with ease as we gather that the surrounding area was not critically affected.

• Meanwhile, the food services outlet (FSO) segment came in softer than expected. The temporary closure of 14 outlets at First World Hotel, Genting Highlands since Jan 2017 has extended its impact to the segmental top line, contracting 12% and 22% on QoQ and YoY respectively. To our disappointment, OWG’s new food court at Genting Premium Outlet and 2 FSOs in Sky Avenue did not partially cushion the decline as expected. Unsurprisingly, margins shrunk correspondingly, by 8ppts to 5.2% YoY.

• To reflect the softer-than-expected FSO, we trim our FY18F/19F forecast by 14%/8%. Key risks to OWG include a decline in visitor footfall at both its key related attractions, Komtar and Genting Highlands and a delay in the opening of Twentieth Century Fox World theme park in Genting.

Source: AmInvest Research - 27 Nov 2017