OWG (5260) - Only World Group Holdings - High-growth proxy to Genting
Target RM2.62 (Stock Rating: ADD)
OWG is a prime beneficiary of the Genting Integrated Tourism Plan. 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 F&B/theme park proxy for the Genting Integrated Tourism Plan (GITP) as higher visitation will result in strong EPS growth of 46-47% in FY16-17. Our target price, which suggests 82% upside, is based on 19x CY16 EPS, a 20% discount to the F&B target sector P/E of 23.7x. Potential re-rating catalysts are the launch of the GITP and strong ticket sales at the revitalised Komtar Penang building.
With over 80% of its revenue derived from Genting Highlands, OWG is a high-growth F&B/theme park proxy for the Genting Integrated Tourism Plan (GITP) as higher visitation will result in strong EPS growth of 46-47% in FY16-17. Our target price, which suggests 82% upside, is based on 19x CY16 EPS, a 20% discount to the F&B target sector P/E of 23.7x. Potential re-rating catalysts are the launch of the GITP and strong ticket sales at the revitalised Komtar Penang building.
Minting cash in Genting
OWG operates food service outlets, primarily in Genting Highlands, which is a captive and monopolistic market, with sales/outlet higher than Starbucks Malaysia. Some 75% of its food outlets are located in Genting. Its Genting operations contribute over 80% of group revenue. The founder, Dato’ Richard Koh is a highly respected and experienced theme park operator. His relationship with the Genting group spans 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 c.30,000 sq ft. With close to 400,000 sq ft in new F&B and retail space to be launched at Sky Avenue/Plaza in 2015, we believe that OWG stands a very high chance of securing additional prime space for its F&B operations.
Komtar: the next upleg
In Dec 12, OWG won a tender to undertake the revitalisation project for the Komtar Tower (the tallest building in Penang), 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.
Undervalued gem
While earnings in FY15 will be flat due to the ongoing renovation works in Genting and Komtar, Penang, investors should focus on earnings from FY16 onwards. We peg our target P/E for OWG at 19x, a 20% discount to the target P/E of its larger F&B peers, Berjaya Food and 7-11 of 23.7x, to reflect a liquidity discount and smaller market capitalisation.
Source: CIMB Daybreak - 16 February 2015
Target RM2.62 (Stock Rating: ADD)
OWG is a prime beneficiary of the Genting Integrated Tourism Plan. 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 F&B/theme park proxy for the Genting Integrated Tourism Plan (GITP) as higher visitation will result in strong EPS growth of 46-47% in FY16-17. Our target price, which suggests 82% upside, is based on 19x CY16 EPS, a 20% discount to the F&B target sector P/E of 23.7x. Potential re-rating catalysts are the launch of the GITP and strong ticket sales at the revitalised Komtar Penang building.
With over 80% of its revenue derived from Genting Highlands, OWG is a high-growth F&B/theme park proxy for the Genting Integrated Tourism Plan (GITP) as higher visitation will result in strong EPS growth of 46-47% in FY16-17. Our target price, which suggests 82% upside, is based on 19x CY16 EPS, a 20% discount to the F&B target sector P/E of 23.7x. Potential re-rating catalysts are the launch of the GITP and strong ticket sales at the revitalised Komtar Penang building.
Minting cash in Genting
OWG operates food service outlets, primarily in Genting Highlands, which is a captive and monopolistic market, with sales/outlet higher than Starbucks Malaysia. Some 75% of its food outlets are located in Genting. Its Genting operations contribute over 80% of group revenue. The founder, Dato’ Richard Koh is a highly respected and experienced theme park operator. His relationship with the Genting group spans 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 c.30,000 sq ft. With close to 400,000 sq ft in new F&B and retail space to be launched at Sky Avenue/Plaza in 2015, we believe that OWG stands a very high chance of securing additional prime space for its F&B operations.
Komtar: the next upleg
In Dec 12, OWG won a tender to undertake the revitalisation project for the Komtar Tower (the tallest building in Penang), 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.
Undervalued gem
While earnings in FY15 will be flat due to the ongoing renovation works in Genting and Komtar, Penang, investors should focus on earnings from FY16 onwards. We peg our target P/E for OWG at 19x, a 20% discount to the target P/E of its larger F&B peers, Berjaya Food and 7-11 of 23.7x, to reflect a liquidity discount and smaller market capitalisation.
Source: CIMB Daybreak - 16 February 2015
