mm2 Asia - DBS Research 2016-11-09: Building recurring income

mm2 Asia - DBS Vickers 2016-11-09: Building recurring income MM2 ASIA LTD. 1B0.SI

mm2 Asia - Building recurring income

  • To be 4th largest cinema operator in Malaysia with new acquisition.
  • Option to purchase two more cinemas and projects under development.
  • Favourable purchase price; scaling up for better synergies and cost savings.
  • Maintain BUY with higher TP of S$0.56.


4th largest cinema operator in Malaysia. 

  • The acquisition of 13 screens in Malaysia would propel mm2 Asia to the top four players in Malaysia. 
  • Besides building recurring income, this acquisition would enable the group to scale up for better synergies and cost savings. 
  • In terms of its core production business, we expect North Asia, including China, Hong Kong and Taiwan, to contribute > 70% of core revenue from FY17F, up from 23% in FY16. 
  • Upside to earnings could come from more projects, especially in China where budgets are much higher.
  • We project mm2 to grow at an EPS CAGR of 70% from FY15- FY18, underpinned by growth in productions, expansion into the China market, and contributions from cinema operations and entertainment company, UnUsUal Group.


UnUsUal listing. 

  • The successful listing of UnUsUal, which mm2 acquired at 10.2x PE back in February 2016, would enable mm2 to crystallise gains and unlock value, and allow UnUsUal to tap on public funds for expansion.


Valuation

  • Maintain BUY with higher TP of S$0.56. 
  • We have adjusted our FY18F earnings up by 5% to incorporate contribution from the new cinemas. 
  • Maintain BUY; target price raised to S$0.56, from S$0.475 (adjusted for 1-for-1 stock split), and pegged to FY18F earnings and peers’ average of 24x.


Key Risks to Our View

  • No long-term financing arrangements for productions. The commencement of each production is dependent on mm2’s ability to secure funding.
  • Availability of good scripts. Lack of good scripts for production may lead to less support from stakeholders




Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2016-11-09
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.56 Up 0.475




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