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Expecting better days after a tough FY21

  • FY21 core net loss of RM35.3m (+35% yoy) was narrower than expectations, mainly due to better-than-expected revenue in 4QFY21.
  • Earnings recovery is highly likely as movement restrictions are gradually lifted. Faster-than-expected resumption of interstate travel is a key catalyst.
  • Reiterate Hold as we think current valuations fairly reflect its recovery prospects and risks.
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FY21 losses narrower than expected

OWG recorded a core net loss of RM35.3m in FY21, narrower than our expectations, mainly due to better-than-expected revenue and EBITDA for its amusement operations in 4QFY21. FY21 revenue declined by 71.3% yoy as movement restrictions and ongoing bans on interstate travel due to heightened Covid-19 cases nationwide led to significantly weak visitations for both its amusement and food service operations in FY21. Even when its operations were allowed to operate and interstate travel was allowed, its amusement operations were still limited to 50% capacity, leading to weak visitor traffic.

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4QFY21 EBITDA returned to the black due to rental waiver

4QFY21 revenue improved both on a yoy and qoq basis, mainly due to relatively reduced movement restrictions, allowing it the opportunity to operate despite some capacity limitations. Nonetheless, we believe this was offset by subsequently soft revenue when the full movement control order (MCO) was implemented in Jun 2021, which caused all of its amusement operations to temporarily close. 4QFY21 amusement segment EBITDA improved significantly, thanks to rental waivers and service charge rebates that were recognised during the quarter, amounting to RM5.3m and RM0.6m, respectively.

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Seeing a light at the end of the tunnel

As more states move to advanced phases with reduced movement restrictions under the National Recovery Programme (NRP), we believe that footfall should return for both OWG’s amusement and food service operations. The lifting of interstate travel bans is also key, in our view, as its major amusement operations in Komtar, Penang and Genting Highlands rely greatly on domestic tourism. Currently, the state of Penang is still in Phase 2 of the National Recovery Programme, implying some form of movement restrictions and thus limiting visitations at this juncture.

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Reiterate Hold as share price rise fairly reflects recovery prospects

We retain our Hold call with a higher TP of RM0.51, now based on a CY22F P/BV of 0.9x vs. 0.7x previously. The narrower discount to CY22F BV is to reflect the greater certainty on the lifting of movement restrictions in the near term. OWG completed a rights issue exercise in Dec 2020, raising c.RM23.9m, which we think provides an adequate cash buffer to weather the ongoing pandemic. A prolonged period of movement restrictions beyond 2021 could require further capital raising, in our view. Upside/downside risks include: i) better-/weaker-than-expected visitations, ii) better-/weaker-than-expected operational margins, and iii) the Covid-19 outbreak situation improving/deteriorating.