TA Securities

TA Securities
IPO
Thursday, December 04, 2014
A Member of the TA Group
FBMKLCI: 1,758.15
Sector: Consumer
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048
Only World Group Holdings Berhad
Fair Value:RM1.03
Main Market Listing
New Chapter to Begin in KOMTAR
Not Rated
THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*
TA Research Team Coverage
Tel : +603-2072-1277 (ext 1264)
ahmadfaris@ta.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
www.taonline.com.my
Share Information
Listing
Enlarged Share Capital (mn)
Market Cap @ RM0.88 (RM mn)
Par Value (RM)
Issue price (RM)
Oversubscription rate
Estimated free float (%)
Tentative listing date
Main Market
185.00
162.80
0.50
0.88
N/A
N/A
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
Price to NTA
Proforma 2013 ROE (%)
Proforma ROA (%)
0.65
1.35
11.3
11.9
0.29
Proforma Gearing (x)
Source: Prospectus, TA Securities
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.
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
Utilisation of Proceeds
KOMTAR Tower Revitalisation
Project
Business Expansion
Working Capital
Estimated Listing Expenses
TOTAL
RM(mn)
%
30.0
60.4
13.0
2.1
4.6
49.6
26.2
4.2
9.2
100.0
TA Securities
4-Dec-14
A Member of the TA Group
Exhibit 2: Business Model
Source: Prospectus, TA Securities
Exhibit 3: Locations of Food Outlets and Amusement Parks
Source: Prospectus, TA Securities
Exhibit 4: Business Overview
Source: Company, TA Securities
Page 2 of 7
TA Securities
4-Dec-14
A Member of the TA Group
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
Eligible Directors, employees and
business associates
Bumiputera Investors Approved by MITI
(MITI Tranche)
Private Placement to selected investors
9,250,000, representing 5.0%
4,000,000 representing 2.16%
18,500,000 representing 10.00%
24,658,900 representing 13.33%
Source: Prospectus, TA Securities
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
TA Securities
4-Dec-14
A Member of the TA Group
Exhibit 6: IPO Structure – Issue price at RM0.88
Details of the Utilisation of
proceeds
Amount of Proceeds Estimated timeframe for the
utilization from the date of Listing
RM’000
%
KOMTAR Tower Revitalisation
Project
30,000
Business expansion
13,000
Working capital Estimated listing
expenses
2,085
4,555
Total
49,640
60.44
26.19
Within 24 months
Within 24 months
4.2
9.17
100
Within 12 months
Within 3 months
Source: Prospectus, TA Securities
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
TA Securities
4-Dec-14
A Member of the TA Group
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
TA Securities
4-Dec-14
A Member of the TA Group
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
Source: Prospectus, TA Securities
Exhibit 9 : Financial Segmentation FY 2014
Source: Prospectus, TA Securities
Page 6 of 7
TA Securities
4-Dec-14
A Member of the TA Group
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
Revenue
71.9
Core EBITDA
24.3
EI
0.0
Pretax profit
15.6
Net profit
10.8
Core Net Profit
10.9
EPS
(sen)
5.9
Core EPS Growth
(%)
0.0
PER (based on
14.9
IPO Price)
(x)
FY12
79.1
29.0
0.0
20.9
15.8
15.7
8.5
0.4
FY13
88.9
36.5
0.0
27.0
20.1
20.1
10.9
0.3
FY14
83.1
29.3
0.0
20.1
14.5
14.5
7.8
-0.3
FY15F
95.1
32.0
0.0
21.7
16.5
16.4
8.9
0.1
FY16F
117.5
35.8
1.0
25.4
19.3
19.3
10.4
0.2
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