mm2 Asia - DBS Research 2017-05-23: An UnUsUal Boost

Mm2 Asia - DBS Vickers 2017-05-23: An UnUsUal Boost MM2 ASIA LTD. 1B0.SI

Mm2 Asia - An UnUsUal Boost


Raised target price to S$0.70 after incorporating a higher valuation for UnUsUal, and slightly higher margins for core business. 

  • UnUsUal has staged a spectacular performance post listing on the Catalist board of SGX on 10 April 2017. 
  • UnUsUal's Share price has gained a whopping 170% vs its IPO price of S$0.20.
  • After incorporating the current valuation for UnUsUal and tweaked net margins for core business to 25% from 24% previously, our target price is now S$0.70.


Growth supported by core business and UnUsUal; cinemas to build recurring income. 

  • We continue to project mm2 to grow at an EPS CAGR of 52% from FY16-FY19, underpinned by growth in productions, expansion into the China market, and contribution from UnUsUal
  • The cinema arm, on the other hand, helps the group to build a recurring income base.


Where we differ: Higher valuation peg vs consensus. 

  • We value the core business and post-production segments based on 28x PE, in line with peers listed in Asia, vs consensus of about 25x.
  • For UnUsUal, we value it at current valuation. For the cinema segment, we use a 21x valuation peg.


Potential Catalyst: Reaping fruits of success in North Asia.

  • We expect North Asia 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 the market is bigger and budgets are much higher.


Valuation

  • Maintain BUY with a higher TP of S$0.70 based on SOTP valuation. 
  • We have switched the valuation methodology for mm2 to sum-of-parts valuation from the PE method, as contribution from the different business units will be more meaningful going forward.


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/ 2017-05-23
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.70 Up 0.630



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