Investment Highlights

• While Only World Group (OWG) has tremendous prospects ahead, it continues to underwhelm on earnings in the interim. Maintain HOLD recommendation with a lower fair value of RM1.39/share (from RM1.53/share) as we trim our earnings and roll over our valuation period to FY19F from CY18F. Our FV is based on a PE of 16.5x EPS, which is close to the average of its peers.

• While we like OWG for its exciting growth prospects ahead and consumer-driven theme, the uncertainty surrounding the multiple moving parts tied to various assets, including KOMTAR, clouds our visibility on earnings. Instead, we prefer the actualization of its Genting attractions in FY19 as key to a rerating in valuations.

• OWG posted 3QFY18 earnings of RM1.3mil (QoQ: -48%; YoY: 18%) bringing the 9MFY18 earnings to RM5.8mil (YoY: 17%). The results are below our and consensus expectations at 44% and 49% of full-year estimates respectively.

• No dividend was declared as expected.

• Topline for the quarter grew 6.2% on account of higher contributions arising from the amusement segment, with the commencement of OWG’s family attractions in Sky Avenue in Feb 2018.

• Revenue was partially offset by the 31% YoY contraction in the food service outlets (FSOs) revenue for the quarter. This is attributed to store closures related to its FSOs in First World Plaza. It had made way for refurbishment works, in tandem with the ongoing Genting Integrated Tourism plan (GITP). The introduction of 4 stores in Sky Avenue helped cushion the contraction. Going forward, we expect growth to turn positive heading into FY19F, supplemented by 10-15 new kiosks within the Twentieth Century Fox World theme park.

• EBIT margins improved dramatically by 8.1ppts to 12.9% for the quarter YoY. This is attributed to greater economies of scale and is reflective of OWG’s high operating leverage. We expect it to underline future revenue growth to exponentially drive earnings heading into FY19F. Meanwhile, financing cost more than doubled as it offset headway made through operational efficiencies.

• We lower our estimates in tandem with more conservative margin assumptions. Correspondingly, our FY18F-FY20F earnings are lowered by 17%-20% respectively. Key risks to OWG include a decline in tourists and a delay in the opening of Twentieth Century Fox World theme park in Genting.

Source: AmInvest Research - 22 May 2018