MM2 ASIA LTD
41C.SI
mm2 Asia - UnUsUal acquisition
- Acquires UnUsUaL Group to become the biggest entertainment group in Singapore
- Synergistic acquisition; further enhances position in Asia
- Earnings for FY17F-18F adjusted up by 12%-13%
- Maintain BUY, TP: S$1.05
High-margin business model with impressive growth.
- mm2 generates revenue by extracting fees from producing and distributing movies. It has a high-margin business model (gross margin: 40% to 50%, Net margin: c.20%) with an impressive growth outlook.
- We expect mm2 to grow at an EPS CAGR of 46% for FY15 to FY18F, underpinned by growth in local productions, expansion into the China market, and contribution from cinema operations and newly acquired entertainment company, UnUsUal Group.
Riding on growing demand and support for local production; gaining traction overseas.
- mm2 is poised to ride on the growing demand for local production and it will continue to grow its presence in Taiwan, Hong Kong and China, by leveraging on the business relationships it has established.
Spreading its wings in China to support growth.
- mm2 intends to spread its wings to one of the most lucrative movie markets – China.
- The group has already co-produced several productions in China since 2013 and is currently working on a few movies in China. Chinese films generally have bigger budgets and better margins than local productions.
Valuation:
- mm2 is trading at 21x FYMar16F PE and 11x FY17F PE, based on its enlarged share capital, compared to peers’ 24x FY16F PE.
- Taking a 30% discount to peers given its much smaller size, we arrive at a target PE of 17x to derive our target price of S$1.05 on FYMar17F EPS.
- The stock offers potential upside of 52%, and trades at an attractive PEG of 0.31x.
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.
- Productions may be adversely affected by delays and cost overruns. The production process is subject to a number of uncertainties, most of which are beyond mm2’s control.
LING Lee Keng
DBS Vickers
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http://www.dbsvickers.com/
2016-02-04
DBS Vickers
Analyst Report
1.05
Same
1.05
