A Member of the TA Group MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048 I P O Thursday, December 04, 2014 FBMKLCI: 1,758.15 Sector: Consumer Only World Group Holdings Berhad New Chapter to Begin in KOMTAR THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Fair Value:RM1.03 Main Market Listing Not Rated TA Research Team Coverage Tel : +603-2072-1277 (ext 1264) ahmadfaris@ta.com.my www.taonline.com.my Background Only World Holdings Berhad (OWG) is an investment holdings company. Its subsidiaries are essentially engaged in the operations of food service outlets, water amusements parks, family attractions and other retail services. The group focuses on servicing a captive market because its food service outlets are largely integrated with various types of amusement parks, family attractions and shopping areas. Exhibit 1: Corporate Structure Share Information Listing Main Market Enlarged Share Capital (mn) 185.00 Market Cap @ RM0.88 (RM mn) 162.80 Par Value (RM) 0.50 Issue price (RM) 0.88 Oversubscription rate N/A Estimated free float (%) N/A Tentative listing date 5-Dec-14 Tentative Listing Dates Event Opening of the IPO Closing of the IPO Balloting of Applications Allotment of Shares Listing Tentative Date 26-Nov-14 5-Dec-14 9-Dec-14 16-Dec-14 18-Dec-14 Ratio & Analysis Proforma NTA/Share 0.65 Price to NTA 1.35 Proforma 2013 ROE (%) 11.3 Proforma ROA (%) 11.9 Proforma Gearing (x) 0.29 Business Description OWG s business revolves around food service outlets, water amusement park and retail outlets. The F&B segment comprises 25 food service outlets operating under own brand names such as Only Mee and RichDad to name a few and two food service outlets operating under third party brand, namely Marrybrown. Out of 27 outlets, 20 of these outlets operate in Genting Highlands. The F&B segment contributed to approximately 72% of the group s total revenue in FY14. Utilisation of Proceeds RM(mn) % KOMTAR Tower Revitalisation Project 30.0 60.4 Business Expansion 13.0 26.2 Working Capital 2.1 4.2 Estimated Listing Expenses 4.6 9.2 TOTAL 49.6 100.0 OWG also operates 3 water theme parks known as the Wet World. These are located in Shah Alam, Selangor; Pedas, Negeri Sembilan and Batu Pahat, Johor. Wet World is known for its distinctive water rides that serve as the main attractions to the water amusement parks. In addition, OWG operates the Ripley Believe It or Not and Haunted Adventure under the family attractions segment. Water amusement parks and family attractions accounted for nearly 17% of group s total revenue. Retails outlets come under other services segment, providing services such as souvenir imaging service, beatification, healthcare and wellness service. This segment contributes to around 11% of OWG s total revenue. Some 80% of the group s businesses are located in Genting Highlands, Pahang. Page 1 of 7
Exhibit 2: Business Model Exhibit 3: Locations of Food Outlets and Amusement Parks Exhibit 4: Business Overview Source: Company, TA Securities Page 2 of 7
Major Shareholders Post IPO, Dato Koh Cheng Keong and Datin Chew Lean Hong will own 69.1% of the company. Dato Koh Cheng Keong is the founder of OWG. He was appointed as the Managing Director and Chief Executive Officer of the group on 8 November 2012. He is an active member of various international associations of amusement parks. He is currently the President of the Malaysian Association of Amusement Theme park and Family Attractions (MAATFA) (since 2003) and the Honorary Advisor of MAATFA (appointed in 2013). He is a member of the ASEAN Advisory of The International Association of Amusement Parks and Attractions (IAAPA) where in 2013, was appointed to the board of directors. Dato Koh Cheng Keong is also the Vice President of ASEAN Retails Chain Association (ARFF), a position held since 2012. He subsequently became the President of ARFF in 2013. He is a member of the World Waterpark Association (WWA). Out of the balance of 30.5% or approximately 56.4mn new shares, c. 9.3mn are for the public (representing 5.0% of enlarged issue and paid-up share capital). Another 4.0mn (representing 2.2% of enlarged issue shares) will be made available for application by eligible Directors, employees and other persons who have contributed to the success of OWG. Another 18.5mn (accounting for 10.0% of enlarged issued and paid-up share capital) will made available for application under MITI approval. Lastly, c. 24.7mn (representing approximately 13.3% of enlarged issued and paid-up share capital) will be made available for application by way of private placement to selected investors. Exhibit 5: IPO Structure Issue price at RM0.88 Public Issue 56,408,900 new shares (30.49% of enlarged share issued and paid-up share capital) Malaysian general public 9,250,000, representing 5.0% Eligible Directors, employees and business associates Bumiputera Investors Approved by MITI (MITI Tranche) 4,000,000 representing 2.16% 18,500,000 representing 10.00% Private Placement to selected investors 24,658,900 representing 13.33% Utilisation of Proceeds OWG is raising RM49.64mn from the Public Issue. The group plans to use approximately 60.44% from the IPO proceeds to partly fund the KOMTAR Tower Revitalisation Project totaling c. RM60mn. The balance of the IPO proceeds will be used for other expansion plans and to pare down bank borrowings. Page 3 of 7
Exhibit 6: IPO Structure Issue price at RM0.88 Details of the Utilisation of Amount of Proceeds Estimated timeframe for the proceeds RM 000 % utilization from the date of Listing KOMTAR Tower Revitalisation Project 30,000 60.44 Within 24 months Business expansion 13,000 26.19 Within 24 months Working capital Estimated listing expenses 2,085 4.2 Within 12 months 4,555 9.17 Within 3 months Total 49,640 100 Future Plans OWG plans to expand their presence in the following areas: i. The KOMTAR Tower Revitalisation Project will give OWG the opportunity to penetrate a new market, i.e. in Penang. The KOMTAR Tower revitalization project involves refurbishment and enhancement of five specified levels within KOMTAR Tower to create high end commercial space for retail, F&B and recreational purposes. The project is expected to be completed in the 3Q of 2015. ii. A franchise program for Only Mee will allow OWG to expand the chain of food service outlets and diversify their revenue. The group intends to set-up 10 new food service outlets within 24months post listing. iii. Expand and enhance Wet World Water Park Shah Alam by executing the first of a 2-phase expansion plan. The second phase will be completed by end-2016. Investment Case 1. Own Brand Name The group operates 27 food service outlets out of which, 16 are under its own brand names. They are also the owner of the Wet World brand. This is the key strength for the group because they are able to capitalize on brand equity without the need to pay third party royalties and expand the business without restrictions. 2. Experienced Water Park Operator The group has approximately 18 years of experience in managing water parks. Therefore, the group has massive experience relating to all aspects of water amusement park operations - from initial design and conceptualization, to day-to-day operations, maintenance and safety. For that reason, OWG is able to leverage on an established track record as a platform to draw new customers for both the expansion and operation of new water amusement parks. 3. Food Service Outlets are Integral to Other Attractions Food service outlets are integrated with various types of amusement parks, family attractions and shopping areas. The integrated method offers the group with competitive advantage as potential customers base is much bigger because of the various activities and attractions that collectively draw a larger crowd. This will provide critical mass to sustain and grow the group s business as compared to standalone food service outlets. Additionally, out of 27 food outlets through-out Malaysia, 20 are located in Genting Highlands. This enables the company to service a captive market that has sufficient attractions and activities to extend visitors stay in the area. Page 4 of 7
4. Sustainability of Raw Material Supply The group sources bulk of their raw materials for the F&B segments locally. They are dependent on their two main suppliers, Farm s Best Food Industries Sdn Bhd and Marrybrown Sdn Bhd. Materials supplied from Farm s Best and Marrybrown accounted for more than 10% of the group s total purchases in FY13 and FY14. The group has been in relationship with Best Food Industries and Marrybrown Sdn Bhd for approximately 7 and 15 years respectively. 5. Proficient Management Team Dato Koh Cheng Keong and his wife, Datin Chew Lean Hong, have piloted the group for more than 30 years since the formation in 1984. The success of the group is attributed to their ability to conceptualize and execute the plans well. In addition, the group is supported by key management teams that are experienced in operating food service outlets, water amusement parks and family attractions. A well experienced team is vital for a company to succeed, going forward. Risks 1. Entering New Markets The group is expanding their presence into new geographical markets through the refurbishment of KOMTAR Tower in Penang. Bulk of the IPO proceeds will be for this. Penang is known for the food paradise of Malaysia, thus intensifying OWG s F&B operations on the island. There is no assurance that the group can effectively infiltrate the new target market. 2. Weaker Private Spending We expect private spending to decrease to 5.7% in 2015 from 6.8% for the current year. This is in tandem with GDP growth, which we also forecast would ease from 5.8% in the current year to 5.1% in 2015. The slowdown will be underpinned by various subsidy cuts announced by the government since late 2013. In addition, the implementation of GST in April 2015 and the possibility of another round of interest rate hike by 2H2015 could result in even softer consumer sentiment and spending, going forward. 3. Seasonality Factor Water amusement parks and family attractions demand are very much depending on seasonality. The number of visitors will usually surge during holiday seasons and during the weekends. Therefore, the Group exposed to the risk of low volume visitors during non-peak season. The numbers of patronage have been declining since FY 2012 to FY 2014 due to closing for maintenance and repairs works. Financial Highlights OWG s earnings have growth at a CAGR of 9.9%over the past 4 years. The revenue from food service operations for the FY13 to FY14 decreased due to the closure of 10 food service outlets during the year. This was the result of the closure of Genting s Outdoor Theme Park as well as several upgrading and development works undertaken by the group. To recap, the closure of Outdoor Theme park with effect from 1 September 2013, is to facilitate the construction of a Twentieth Century Fox Theme Park by Genting Malaysia Berhad. With the new theme park expected to be operational around 2016/17, we expect the opening to bring an influx of visitors. This, we opine should result in steady earnings growth for the group. However, downside risks to this assumption include the opening of more new competing F&B outlets and delays in opening of the new theme park. Page 5 of 7
Revenue for family attractions is heavily dependent on the number of patrons who visit both Ripley Believe It Or Not and Haunted Adventure. The revenue from this segment had decreased due to the lower patronage as a result of the change in management strategy, where more sales and marketing efforts were focused in the growth of food service operations. Revenue from this segment is also affected by the recent decline in the number of visitors to Resorts World Genting. No Fixed Dividend Policy OWG does not have any formal dividend policy. Any dividends recommended by the directors will be subjected to approval by the Board. Exhibit 7: Financial Segmentation by PBT Margin FY 2014 Exhibit 8: Financial Segmentation FY 2014 Exhibit 9 : Financial Segmentation FY 2014 Page 6 of 7
Valuation Based on its IPO price of RM0.88, OWG is valued at c. 11.3x for FY14. There are no direct competitors for OWG because most of their businesses are operated in Genting Highlands where they are the major third party operator. Hence, we fairly value OWG at RM1.03 using CY15 EPS of 9.7sen. This is at a slight 10% discount to the average of its closest peers PER of 11.8x. Here, we based our valuation on Oldtown Berhad (chain food retailer) and Sentoria (amusement park operator), which are trading at PE13.6x and 10x for the leisure division respectively. We believe the discount is justified by OWG s F&B concentration in Genting vs. Oldtown regional presence. Total upside works out to c. 18.2%. Earnings Summary (RMmn) YE 31 March FY11 FY12 FY13 FY14 FY15F FY16F Revenue 71.9 79.1 88.9 83.1 95.1 117.5 Core EBITDA 24.3 29.0 36.5 29.3 32.0 35.8 EI 0.0 0.0 0.0 0.0 0.0 1.0 Pretax profit 15.6 20.9 27.0 20.1 21.7 25.4 Net profit 10.8 15.8 20.1 14.5 16.5 19.3 Core Net Profit 10.9 15.7 20.1 14.5 16.4 19.3 EPS (sen) 5.9 8.5 10.9 7.8 8.9 10.4 Core EPS Growth (%) 0.0 0.4 0.3-0.3 0.1 0.2 PER (based on IPO Price) (x) 14.9 10.4 8.1 11.2 9.9 8.4 Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA SECURITIES HOLDINGS BERHAD(14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan Head of Research Page 7 of 7