Cityneon Holdings - Attractive growth profile
Continue to expect explosive earnings growth.
- We have trimmed earnings for FY17F by 8% to factor in the delay in the launch for Transformers in Las Vegas. Despite this, we continue to expect Cityneon to register explosive FY16-FY19F EPS CAGR growth of c.150%.
- Cityneon is attractive to investors seeking growth and unique ideas in the entertainment industry.
- An expanding project pipeline, plans to add a third Intellectual property rights (IP), and potential tie- ups with strategic investors like CMC Holdings are catalysts.
Scalable business model with low execution risk.
- Cityneon’s earnings are directly correlated with the number of exhibits it has. The group has announced its forthcoming openings in Taipei, Taiwan (June 2017) and Sydney, Australia (December 2017).
- We believe that more sets would be needed to fulfil the overwhelming demand. We expect a total of seven sets by end-2017, and eight sets by 2018.
Potential for third IP.
- There is a huge pool of franchises that meet management’s criteria of box office of >US$1bn and with sequels in the pipeline. Some attractive options include Star Wars, Jurassic Park, Batman and Spiderman.
- We expect the Victory Hill Exhibitions (VHE) team to leverage their credentials in developing the Avengers and Transformers exhibits to leapfrog to the next IP.
Valuation: Maintain BUY with lower TP of S$1.26
- Maintain BUY with a lower TP of S$1.26, after incorporating the delay in the launch for Transformers in Las Vegas.
- The cost of the new set has also been shifted to FY17F instead of FY16F. Our TP is based on peer average PE valuation of 17x FY17F earnings.
Key Risks to Our View
- VHE’s limited track record. VHE was formed in 2012 and the first exhibition was in New York in 2014.
- Earnings dependent on number of visitors, especially for the permanent sets in Las Vegas.