CIMB Research retains Hold for Only World Group, TP RM1.90

KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Only World Group (OWG) and target price of RM1.90 after the company announced it planned to place out up to 10% of its share capital.

The research house said on Monday the corporate exercise could raise up to RM36.9mil, which will be mainly used to fund expansion plans in Resorts World Genting, Genting Highlands.

“This is long-term accretive as OWG’s Genting expansion is slated to be a key earnings driver in the future. 

“Our initial estimates indicate that the placement could cut our FY18-19F EPS by 1.6- 8.5% and target price by 7.9%,” it said.

CIMB Research said the target price of RM1.90 was still based on 18 times CY18 P/E. 

Based on the illustrative placement price of RM1.52 this would enable it to raise RM36.9mil assuming full subscription. 

The bulk of the potential proceeds (RM25mil or 68% of total proceeds) will be used for ongoing and upcoming expansion plans in Resorts World Genting, Genting Highlands.

OWG plans to build an integrated attraction zone at Sky Plaza, which is due for completion by end-4QCY17, and relocation and renovation works on some of the closed outlets and attractions, as per the ongoing Genting Integrated Tourism Plan.
 
In total, OWG estimates that total capex for its expansion plans in Genting should be in the region of RM45mil-RM50mil. The net remainder of the required capex is likely to be funded through bank borrowings. 

“OWG should not face any issues raising financing for the expansion given that net gearing is still low at 0.32 times. 

“The remaining proceeds from the placement exercise of RM11.9mil (32%) will be utilised for working capital requirements (RM11.1mil/30%) and estimated expenses for the exercise (RM800,000/2%),” it said.

Assuming the private placement is fully subscribed, OWG’s share base will rise by 10% to 267.2 million shares. 

“We estimate that this will have a dilutive impact on our FY18-19F EPS by 1.6%- 8.5%. The placement could lead to a 7.9% cut in our target price due to the earnings dilutive impact of a larger share base. 

“Note that OWG’s key shareholder and management, Datuk Seri Richard Koh and family, will still own a controlling stake of 50.2% post this exercise. 

“Despite the EPS dilution and potential overhang on the share price, OWG should benefit in the long run from the return generated from its expansion plans in Genting Highlands. 

“We are of the view that the investment in Genting will help drive future earnings of the group and allow it to retain its market positioning in Genting Highlands,” it said.