Only World Group’s future earnings growth seen to hinge on GITP

This article first appeared in The Edge Financial Daily, on September 28, 2018.
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Only World Group Holdings Bhd
(Sept 27, 92.5 sen)
Maintain hold with an unchanged target price (TP) of 97 sen:
Only World Group Holdings Bhd’s (OWG) share price goes ex from its issuance of one free warrant for every two existing shares. In total, the group will issue up to 133.6 million free warrants. The new warrants are slated to be listed today.

OWG highlighted that the issuance of the free warrants is mainly to reward shareholders. It will also provide investors the opportunity to increase their equity participation in the company without incurring any additional cost. Assuming all warrants are fully exercised, the group’s share base will increase to 400.7 million, from 267.1 million currently.

Based on the exercise price of 80 sen per warrant, OWG may potentially raise cash of up to RM106.8 million. We gather that the proceeds will be mainly utilised to finance its working capital requirements. As a result, it will be able to lower its borrowings as it has a net debt of RM86.9 million (as at end-fourth quarter of financial year 2018 [FY18]). We also believe that OWG may utilise the warrant proceeds for any potential merger and acquisition activities, if the opportunity arises.

From FY19 onwards, OWG’s future earnings growth will be highly dependent on the opening of key pieces of the Genting Integrated Tourism Plan (GITP). This is given that visitor numbers are highly dependent on the crowd that Genting attracts, despite the completion of all of OWG facilities in Genting. In our forecast, we are assuming the new outdoor theme park will be open by the first half of calendar year 2019 forecast (1HCY19F) and the indoor theme park will begin operations by October to November 2019. Any further delays could pose risks to our earnings forecasts.

Downside risks are a sharp decline in the number of visitors to its Komtar operations and Genting facilities. On the other hand, higher-than-expected spending per visitor at its Komtar operations is a key upside risk.

We maintain our “hold” call, with a fully diluted sum-of-parts-based TP of 97 sen. Our TP is still based on 18 times CY19F price-earnings ratio (PER), a 20% discount to our consumer sector target CY19F PER of 22.7 times. In our view, current valuations have largely priced in its potential strong earnings growth from its exposure to the GITP. — CGSCIMB Research, Sept 26