Going For Listing: Only World offers exposure to theme park operations

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FOOD service and amusement park operator Only World Group Holdings Bhd (OWG) will be the only counter on Bursa Malaysia to offer pure exposure to theme park operations when it lists on the Main Market on Dec 18.

In its initial public offering (IPO), the group raised RM49.64 million through a public issue and private placement of a total of 56.41 million new shares at 88 sen apiece. The IPO does not involve the offer for sale of existing shares by the promoters.

OWG is using the bulk of the listing proceeds — 60% or RM30 million — to fund the revitalisation of the 65-storey Komtar Tower in George Town, Penang. The project is expected to cost between RM50 million and RM60 million and is targeted for completion by the middle of next year.

Komtar is expected to drive the group’s earnings going forward. When the enhancement of the tower is completed, OWG will manage five floors of retail, food and beverage (F&B) outlet and recreational space in it on a 45-year lease, with an option to extend by another 15 years.

“This could lift OWG’s earnings in the financial year ending June 30, 2016 (FY2016) significantly due to the roughly 130,000 sq ft of floor space it will be operating. OWG’s present food service operations only cover 50,000 sq ft,” says Cheah King Yoong of Alliance Research in a Dec 4 note.

“Overall, we forecast Komtar to contribute about 33% to OWG’s FY2016 top line, driving its year-on-year growth by about 60% and making up 27% of gross profit in the period.”

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At present, about 80% of OWG’s revenue comes from its operations in Genting Highlands, where it operates 31 out of its 46 F&B outlets. It also operates two attractions — Ripley’s Believe It or Not and Haunted Adventure — in Genting Highlands and several other theme parks across the country under such brands as Wet World.

Due to the closure of the Genting Outdoor Theme Park in September last year, OWG saw a decline in its FY2014 earnings in line with the reduction in visitors to the highland resort. Net profit came in sharply lower at RM14.55 million on revenue of RM83.08 million, compared with RM20.11 million and RM88.87 million respectively in FY2013.

“We are optimistic that the reopening of the 20th Century Fox World theme park by mid-2016 will lift FY2017 earnings, together with Komtar’s contributions,” Cheah says.

From the listing proceeds, OWG will spent 26% or RM13 million over the next two years on expanding its food service operation by another 10 outlets — five in Genting Highlands, three in Penang and two in Putrajaya. Of the remaining amount, RM2.1 million will be used as working capital and RM4.6 million for listing expenses.

The public issue of the IPO comprises 56.4 million new shares of 50 sen each at an offer price of 88 sen apiece. Of this, 9.225 million shares are for the Malaysian public and four million for eligible directors and employees. The bumiputera portion involves 18.5 million shares with an additional 24.6 million to be placed out to selected investors.

According to OWG’s prospectus, the group’s pro forma net assets per share as at June 30 was 70 sen, based on the enlarged issued and paid-up capital of 185 million shares. Its market capitalisation upon listing will be RM162.8 million — roughly 11.2 times FY2014 earnings.

“OWG has low borrowings with a gearing ratio of 32% and was in a net cash position as at end-FY2014. We expect its balance sheet to remain strong going forward, particularly post-IPO, as it should continue to have sufficient cash to fund its expansion plans and working capital,” Cheah comments.

Post-listing, OWG will have RM20.4 million in cash and bank balances, according to its prospectus, and borrowings of RM26.8 million.

For now, the group has no dividend policy, but management says it will consider some pay-out going forward.

Alliance Research values OWG at RM1.10 per share, a conservative valuation based on a 10% discount to the FTSE Bursa Malaysia Small Cap Index’s forward price-earnings multiple of 11 times.

“The near-term outlook for Malaysia’s consumer spending is challenging, dampened by subsidy cuts, utility tariff hikes and the upcoming implementation of the Goods and Services Tax. OWG’s operations will likely be affected,” Cheah observes.

This article first appeared in The Edge Malaysia Weekly, on December 15-21, 2014.