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Tuesday, August 23, 2016

Only World Group earnings hit by pre-opening expenses

Tuesday, 23 August 2016 | MYT 8:52 AM
Only World Group earnings hit by pre-opening expenses

KUALA LUMPUR: Only World Group (OWG) posted lower earnings in the financial year ended June 30, 2016 (FY6/16) due to pre-opening expenses at Komtar but excluding this item, the earnings would have been in line with expectations, says CIMB Equities Research.

It said on Tuesday OWG’s FY06/16 net profit of RM12.6mil was 12% below its estimate due to the RM3mil pre-opening expenses at Komtar. Excluding this item, net profit would have been in line with expectations.

The 4QFY16 saw a jump in depreciation expenses and sharply lower EBITDA margin due primarily to Komtar again (almost RM2mil increase). This caused a 55% drop in net profit on-year in 4QFY16 vs. 4QFY15.

“No final dividend was declared for FY16, below expectations but understandable, given that the size of Komtar’s capex has doubled. We lower our FY17-19F dividend payout ratio from 25% to 20%. Full-year FY16 dividend payout ratio was 17% (vs. our 25% estimate),” it said.

CIMB Research cut its FY17F EPS by 4% as there will likely be more pre-opening expenses in 1QFY17 since Komtar’s full opening will only happen in 2QFY17.

It said that regulatory inspection of the interactive lifts at Komtar has been scheduled for late-September, with a targeted opening of Komtar (both the lifts and major themed attractions) in late-October/early November.

“OWG’s recent share price weakness is an opportunity to accumulate, in our view. While investors have been disappointed by the delay in Komtar’s opening, we believe that the stock will re-rate strongly when Komtar’s interactive lifts finally open in September.

“OWG is trading at a FY17F P/E of only 11.5 times which is more than a 50% discount to the F&B sector average. This is unjustified, in our view, as the Komtar delay is merely a timing issue.

“We maintain our Add rating on OWG, and the stock is still one of our top small-cap picks for 2016. We lower our target price slightly, still pegged to 21.2 times CY17F P/E, a 10% small-cap and liquidity discount to the F&B sector average.

“Potential re-rating catalysts include the launching of Komtar’s lift in October/November and higher-than-expected visitation numbers. A key risk is further delays in Komtar’s opening,” it said.

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