OWG has proposed a bonus issue of warrants which will entail the issuance of up to 133,550,000 free warrants based on 1 warrant for every 2 existing OWG shares held. Below are the details on the bonus issuance:

• Pricing – The exercise price will be determined at a later date, which will take into account the historical trading prices of OWG shares, the 5-day volume weighted average market price (VWAP) and future working capital requirements of the group;
• Tenure – The proposed bonus issuance of free warrants can be exercised within 5 years, commencing from the issuance date;
• Utilisation of proceeds – Proceeds raised as and when the warrants are exercised will be utilised for the working capital requirements of the group.

Comment:

• The issue of the 133.55mil warrants based on the indicative exercise price of RM0.80/share is expected to raise RM106.84mil. According to its announcement to Bursa Malaysia, the proceeds would be used for working capital.
• We gather that there will be 10-15 new kiosks within the Twentieth Century Fox World theme park which is expected to be completed within 1H2019. We understand that currently OWG is operating 23 food service outlets (FSO) and 4 family attractions in Genting, and 13 FSOs and 14 family attractions in Komtar Tower.
• The issue of the warrants is EPS-dilutive. OWG’s EPS would decline by 25.8% as the increase in share base would more than offset the interest income from the warrants proceeds. In the long term, the dilutive impact may be minimised by the returns from the investment of the warrants proceeds.

We maintain our HOLD recommendation and fair value of RM1.39/share. Our indicative fair value post-EPS dilution is RM1.03/share. Our fair value is based on a PE of 16.5x on FY19F EPS which is close to the average of its peers. 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 - 7 Aug 2018