mm2 Asia - DBS Research 2016-03-28: Entry of a star

mm2 Asia - DBS Research 2016-03-28: Entry of a star MM2 ASIA LTD 43D.SI 

mm2 Asia - Entry of a star 

  • Collaboration with StarHub to produce up to S$25m of local content productions 
  • Adjust earnings for FY17F and FY18F by 11% and 9% respectively 
  • Maintain BUY, TP raised to S$0.63 


Raising profile with entry of StarHub. 

  • With StarHub now becoming a strategic investor with a 9.05% stake, mm2 can tap on the former's strong brand name and this could raise its profile and pave the way for bigger opportunities ahead. 
  • We maintain our BUY call on mm2 with a higher target price of S$0.63. mm2 generates revenue by extracting fees from producing and distributing movies. It has a high-margin business model (Gross margin: 40-50%, Net margin: c.20%) with an impressive growth outlook. 
  • We expect mm2 to grow at an EPS CAGR of 59% 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. 

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: 

  • Earnings for FY17F and FY18F adjusted up by 11% and 9% respectively, after accounting for StarHub’s collaboration. mm2 is trading at 31x FYMar16F PE and 17x FY17F PE, based on its enlarged share capital, compared to peers’ 20x FY17F PE. 
  • Using peers’ average of 20x, we derive our target price of S$0.63 on FYMar17F EPS, up from S$0.525 previously. 
  • The stock offers potential upside of 20%, and trades at an attractive PEG of 0.35x. 
  • Maintain BUY. 

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 | http://www.dbsvickers.com/ 2016-03-28
DBS Vickers Analyst Report BUY Maintain BUY 0.63 Up 0.52


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