Cityneon Holdings (CITN SP) - UOB Kay Hian 2017-08-11: Reject Offer; Too Deep Of A Discount To Target Price

Cityneon Holdings (CITN SP) - UOB Kay Hian 2017-08-11: Reject Offer; Too Deep Of A Discount To Target Price CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings (CITN SP) - Reject Offer; Too Deep Of A Discount To Target Price

  • Cityneon’s board of directors dispatched the mandatory unconditional general cash offer document for all shares of Cityneon at S$0.90/share today. 
  • We recommend that minority shareholders reject the offer as it is at a deep discount to our target price of S$1.28. Maintain BUY with SOTP-based target price of S$1.28.



WHAT’S NEW


General offer document dispatched. 

  • Cityneon has dispatched Lucrum 1’s offer document to shareholders for all shares of the company at S$0.90/share. 
  • Cityneon has appointed RHT Capital (RHTC) to act as an independent financial advisor of the deal. RHTC has recommended that shareholders REJECT THE OFFER. 
  • Cityneon’s independent directors have also recommended that shareholders REJECT THE OFFER.

A new creative director. 

  • Cityneon has appointed Welby Altidor as Group Chief Creative Officer. 
  • Mr Altidor began his career as a talent scout for the world-renown Cirque du Soleil (CDS). His last appointment at CDS as executive creative director saw Mr Altidor overseeing shows such as Luzia and Michael Jackson ONE at Mandalay Bay Resort and the MGM Casino Las Vegas. 
  • Mr Altidor has chosen to join Cityneon as Group Chief Creative Officer and will be based in Las Vegas. He will be in charge of conceptualising and executing new projects and business ventures.


STOCK IMPACT


Offer price not attractive for minority shareholders. 

  • Star Media Group Bhd’s exit from Cityneon has triggered a mandatory general cash offer for the remaining issued shares of Cityneon. 
  • We are of the opinion that the offeror (Lucrum 1) intends to keep the public listing status of Cityneon as it would allow Cityneon easier access into capital markets in the event of any M&A opportunities. 
  • Furthermore, the offer price of S$0.90 represents a 4.3% discount to Cityneon’s last traded price. It does not adequately reflect the fair value of Cityneon given the explosive 2016-19 earnings growth potential of the company. The offer price is at a 30% discount to our S$1.28/share target price for Cityneon.

Who is Lucrum 1 Investment? 

  • Lucrum 1 Investment is an investment holding company controlled by three key directors. Ron Tan, CEO of Cityneon owns a 15.5% stake in the vehicle with the balance held by Chinese investment holding company Massive Right Investments Limited (76% stake) and Mutual Power International (8.5% stake)
    • Massive Right is an investment holding company controlled by Mr Geng Zhihua. Mr Geng founded Massive Right in 2015 to invest in high growth companies. 
    • Mutual Power is a special purpose vehicle held by Jumpwide Limited. Jumpwide is a wholly-owned subsidiary of Jin Bao Bao Holdings Limited (JBB), a company listed on the Hong Kong Stock Exchange. JBB is engaged in the design, manufacture and sale of packaging products and structural components, provision of corporate secretarial and consultancy services and property investment.

Transaction bodes well for Cityneon. 

  • Through the acquisition of Star Media’s stake in Cityneon, Ron Tan with the support of Mutual Power and Massive Right, will be able to more effectively influence the strategy, expansion and future direction of the company.

Board of directors likely to be overhauled. 

  • The current Cityneon board of directors has a number of Star Media representatives. Once the general offer is cleared, we expect a number of changes to the board composition.


EARNINGS REVISION/RISK

  • No change to our earnings estimate.


VALUATION/RECOMMENDATION

  • We recommend shareholders REJECT THE OFFER and maintain BUY on Cityneon with SOTP-based target price of S$1.28.


SHARE PRICE CATALYST

  • Additional IP rights. If Cityneon is able to secure additional intellectual property (IP) rights for other franchises such as DC Comics or Star Wars, there would be further upside to our valuation.




Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-11
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.280 Same 1.280



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