Only World Group Holdings Bhd
(Feb 16, RM1.56)
Initiate coverage with an add rating and a target price (TP) of RM2.62. Only World Group Holdings (OWG) is a prime beneficiary of the Genting Integrated Tourism Plan (GITP). Increased visitation to Genting Highlands from late 2015, and theme park and restaurant  expansions in this captive market will drive its explosive earnings growth. We initiate coverage with an “add” rating.

With over 80% of its revenue derived from Genting Highlands, OWG is a high-growth food and beverage (F&B)/theme park proxy for the GITP as higher visitation will result in strong earnings per share (EPS) growth of 46% to 47% in financial year ending June 30, 2016 (FY16) to FY17. Our TP, which suggests 82% upside, is based on 19-time calendar year 2016 EPS, a 20% discount to the F&B target sector price-earnings ratio (PER) of 23.7 times. Potential rerating catalysts are the launch of the GITP and strong ticket sales at the revitalised Komtar Tower (the tallest building) in Penang.

Some 75% of OWG’s  food outlets are located in Genting. Its Genting operations contribute over 80% of group revenue. Its founder Datuk Richard Koh is a highly respected and experienced theme park operator. His relationship with the Genting group has spanned more than 15 years since it first began operating F&B outlets in Genting. 

The 20th Century Fox theme park will be the first of its kind globally, which will drive visitation strongly. OWG’s F&B space in Genting is about 30,000 sq ft. With close to 400,000 sq ft in the new F&B and retail space to be launched in Sky Avenue/Plaza shopping mall in 2015, we believe that OWG stands a very high chance of securing additional prime space for its F&B operations.

On Dec 12, OWG won a tender to undertake the revitalisation project for the Komtar Tower, which involves a transformation of the building’s top five floors into high-end commercial retail, F&B, and a tourist observation deck. In exchange, it was granted an up to 60-year concession to operate the F&B and other outlets on these floors.The crown jewel, in our view, is the potential tourist receipts from the observation deck, given that Penang is a major tourist destination.

While earnings in FY15 will be flat due to the ongoing renovation works in Genting and Komtar, investors should focus on earnings from FY16 onwards. We peg our target price PER for OWG at 19 times, a 20% discount to the target PER of its larger F&B peers, Berjaya Food Bhd and 7-Eleven Malaysia Holdings Bhd of 23.7 times, to reflect a liquidity discount and smaller market capitalisation. — CIMB Research, Feb 16

This article first appeared in The Edge Financial Daily, on February 17, 2015.