Mm2 Asia - DBS Research 2017-05-24: FY2017 Net Earnings Beat Our Expectations By 13%

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MM2 ASIA LTD. 1B0.SI

Mm2 Asia - FY2017 Net Earnings Beat Our Expectations By 13%

• FY2017 net profit of S$18.8m (+130% y-o-y) beat our expectations by 13%.
• Gross profit margin of 47.5% better than expected
• Improving cash position.
• Maintain BUY; TP S$0.70 based on SOTP valuation.

Results highlight 

mm2 Asia reported a strong set of FY Mar 2017 results 

• Net profit for FY2017 of S$18.8m (+130%) was 13% above our expectations due to better margin. Revenue came in at S$95.4m (+149%). 
• The increase in revenue was mainly due to additional revenue generated from its newly acquired subsidiary, UnUsUal, which recorded revenue of S$22.6m, and additional revenue generated from cinema business of S$7.7m. 
• Revenue from core business increased by 86% to S$55.3m in FY2017, whereas revenue from its post production business (Vividthree) increased by 36% y-o-y to S$4.9m in FY2017.

Gross profit margin better than expected at 47.5% 

• Gross profit increased by 146% y-o-y to S$45.3m in FY2017, partly contributed by S$8.5m from UnUsUal, and partly from its new cinema business of S$4.7m. Gross profit of core business doubled to S$26.4m whereas post production business increased by 8% to S$2.7m in FY2017.
• Overall, gross profit margin for FY2017 was 47.5%, vs 48% for FY2016, and our earlier projection of 42%.

Improving cash position 

• Net cash position in FY2017 improved to S$14.1m, from S$1.7m a year ago. 
• On a cashflow basis, mm2 recorded an increase in net cash of about S$18.3m as compared to a net cash decrease of S$1.5m in FY2016.

Recommendation 

• We continue to project that mm2 will 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, builds a recurring income base.
• North Asia contributed 56% of the group's production revenue in FY2017, up from 35.7% in FY2016. Going forward, we expect North Asia to contribute > 70% of core revenue. 
• Upside to earnings could come from more projects, especially in China where the market is bigger and budgets are much higher.

Maintain BUY with TP of S$0.70 based on SOTP valuation.

• We have switched our 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.

Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2017-05-24

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.700 Same 0.700