THE rapid progress of Only World Group Holdings Bhd’s (OWG) share price since its listing on Bursa Malaysia last December has surpassed investors’ expectations. But there could still be a case that future earnings growth could help support the stock’s price.
OWG (fundamental: na; valuation: na), which is in the business of operating theme parks, family attractions and food service outlets (FSO) within selected captive markets, debuted on the local bourse with the fanfare and atmosphere of a theme park. It offered the company’s shares at just 88 sen apiece during the initial public offering.
On its maiden trading day, it tested investors’ patience by dipping to a low of 68 sen before bouncing back to close at 91.5 sen. OWG reached an all-time high of RM2.93 on May 28. Currently, it trades in the region of RM2.70, or three times more than its IPO price. Year to date, the stock has grown 212.36%, a particularly notable achievement compared with the FBM KLCI, which has depreciated 2.52%, and the FBM Small Cap Index, which expanded 6.34%.
OWG managing director Datuk Richard Koh tells The Edge that OWG is “very delighted” with the stock’s performance, stating that it is a reflection of investors’ confidence and optimism of the company’s prospects.
“We believe the projects lined up for OWG will greatly contribute to the earnings and visibility going forward ... This year, we will be focusing on the Komtar project and we target to commence the businesses in Komtar stage by stage with the grand launch at the end of the year,” he adds.
OWG has dedicated 60% or RM30 million of its IPO proceeds to the Komtar Tower revitalisation project. Penang’s tallest building and a state icon, Komtar is expected to be OWG’s next captive market and its biggest earnings catalyst.
Koh says, “We believe that the next catalyst for earnings growth would be the high-end dining outlets (59Sixty) and sky bar in the form of F&B revenue, together with further space expansion, which will increase our net lettable area in Komtar.”
OWG had secured a deal with Penang Development Corp to refurbish five levels within Komtar Tower. OWG will add a retail podium, multi-purpose halls, themed attractions, fine dining outlets, a rooftop sky bar and a lookout deck. In exchange, OWG gets a 45-year lease for the floors.
To date, of the five levels OWG is responsible for refurbishing, two have been completed and opened to the public. Its first restaurant, 59Sixty, was opened at the beginning of the month and has seen “overwhelming response from the public with a full-house booking on the first week of opening”, Koh says.
The actual earnings impact from Komtar Tower after OWG gives it a new lease of life has yet to be seen. Renovations are on track but will only be completed at the end of the year.
At the time of the IPO, DBS Alliance Research estimated that the Komtar venture would contribute about 33% to the top line for financial year 2016 ending June 30, and make up 27% of the company’s gross profit for the period. It also said that OWG has a fair value of RM1.10 in an unrated note dated Dec 4, 2014. That was a 10% discount to the Malaysian Small Cap Index forward price-earnings ratio multiple of 11 times and reflected the potential earnings risks arising from the Komtar project.
Meanwhile, CIMB Research analyst Marcus Chan, who follows the stock closely, has a target price of RM3.60 for OWG based on 22.5 times CY2016 earnings per share. This, he says, is still a 10% discount to the industry average of 25 times, relflecting OWG’s size compared with its peers.
“I think OWG is worth that kind of valuation or premium because it operates in captive markets like Genting Highlands and Komtar Tower in Penang where competition is limited. From what I can see, Komtar Tower is on track for opening at the end of the year in time for the school holidays. The company is expected to see revenue growth of 60% per annum for the next two years,” Chan says.
It is also worth noting that OWG’s business in its other captive market, Genting Highlands, where it operates 41,000 sq ft of space for its FSOs, photo and F&B kiosks, retail outlets and Ripley’s Believe It Or Not attraction, has been impacted by redevelopment works under Genting Malaysia Bhd’s RM5 billion Genting Integrated Tourism Plan (GITP). Some of these outlets have been temporarily closed and relocated. Also, the outdoor theme park at Genting Highlands has been closed since September 2013, driving down visitor numbers.
The new Twentieth Century Fox World theme park, which is expected to reopen in 2016, will offer a boost to OWG’s earnings.
“The Twentieth Century Fox theme park in Genting is expected to open at the end of 2016 and the Komtar project will be completed and opened by the end of 2015. So, the six-month impact on earnings from Komtar and Genting would be seen in FY2016 while a full-year impact would be felt in FY2017. The full-blown effect of these developments would be felt in FY2018,” says Chan.
In terms of earnings, he is forecasting revenue of RM107.3 million for FY2016 and RM148.2 million for FY2017 while net profit is expected to reach RM23.3 million in FY2016 and RM35.93 million in FY2017.
As a comparison, for the nine months ended March 31, 2015 (9M15), OWG recorded revenue of RM66.48 million, more than 80% of which was contributed by its FSO segment. Net profit for the period stood at RM11.24 million, with the FSO business contributing over 73%.
By FY2019, Chan claims that OWG could be worth RM8 a share based on his conservative assumptions once the full-earnings impact from OWG’s Komtar revitalisation project and the GITP mature.
“I say that the stock could be worth RM8 by FY2019 by the time all this comes into play and it actually excludes any new developments which could happen between now and then that may boost earnings further,” Chan explains.
OWG has already hinted that more developments are in the works. In its response dated May 13 to Bursa Malaysia’s unusual market activity query during the share price frenzy, OWG said that it was “in very early stages of discussions with certain parties relating to possible business transactions”.
For now, Koh says he is unable to disclose details about these deals due to regulations. But it should be no surprise that OWG’s “fun, food and good living” concept will eventually be expanded.
This article first appeared in The Edge Malaysia Weekly, on June 29 - July 5, 2015.
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