Cityneon Holdings - DBS Research 2017-02-24: Growth intact

Cityneon Holdings - DBS Vickers 2017-02-24: Growth intact CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Growth intact

  • Overall earnings for FY2016 surged threefold to S$7.5m; in line.
  • Expanding regional footprint for exhibition sets; exploring third IP.
  • Theme park and Middle East projects to drive growth for Traditional business.
  • Maintain BUY and TP of S$1.26.



Continue to expect explosive earnings growth. 

  • 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 are catalysts.


Strong surge in FY2016 earnings; scalable business model with low execution risk. 

  • Cityneon reported a strong surge in earnings for FY2016, mainly contributed by the Intellectual Property Rights (IPR) segment, which generate revenue from both the travelling and permanent exhibition sets. 
  • Cityneon’s earnings are directly correlated with the number of exhibits it has, with the cost of subsequent sets at a fraction of the first set.
  • Furthermore, execution risk is low as it is usually borne by its partners for the travelling sets.


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.


Valuation

  • Maintain BUY, TP S$1.26. We maintain our earnings forecasts for FY17F and FY18F, on the assumption of a total of seven exhibition sets by end-2017, and eight sets by 2018. 
  • We have not factored in the potential upside from the Traditional business, if the group is successful in securing theme park related projects, which tend to offer higher margins as compared to conventional exhibition projects.


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.




Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2017-02-24
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.260 Same 1.260



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