CityNeon Holdings - UOB Kay Hian 2016-04-28: Blockbuster Years Ahead

CityNeon Holdings - UOB Kay Hian 2016-04-28: Blockbuster Years Ahead CITYNEON HOLDINGS LIMITED 5HJ.SI 

Cityneon Holdings (CITN SP) - Blockbuster Years Ahead 

  • Cityneon enjoyed positive feedback during its recent marketing trip to Singapore. The company is poised to ride the wave of success of the Avengers and Transformers blockbuster movie titles. 
  • We see the finalisation of naming rights for the Las Vegas property and securing of additional intellectual property rights as potential catalysts. 
  • There is also a potential for earnings surprises. 
  • Maintain BUY with a conservative PE-based target price of S$0.72. 


  • Marketing trip to Singapore. We hosted Cityneon’s management during meetings with various institutional investors in Singapore recently. This report highlights the key takeaways and feedback. 


 Positive feedback. 

  • Investors gave positive feedback on Cityneon, citing management foresight and explosive growth potential through the Victory Hill Exhibition (VHE) acquisition. The VHE business segment looked interesting to investors, given: 
    1. the high barriers to entry in the form of agreements with Marvel Entertainment and Hasbro Inc, and 
    2. VHE’s advanced technical know-how in creating immersive experiences. 

 Paris update. 

  • Cityneon opened the Avengers S.T.A.T.I.O.N. attraction at Esplanade de La Défense in Paris France on 15 Apr 16, which is slated to run until 25 Sept 16. 
  • We believe that demand has surpassed expectations, partly due to the school holiday spring break in Paris, Versailles, Toulouse and Montpellier as well as the release of Marvel’s Captain America: Civil War. 

 Paris attraction to possibly surprise on the upside. 

  • In Jun 15, Global Experience Specialists (GES) which owns the rights to Harry Potter: The Exhibition, reported that the Harry Potter exhibit in Paris which ran from 4 Apr 15 to 6 Sep 15 attracted more than 200,000 guests in just two months, which translates to about 3,300 guests per day. 
  • If the Avengers S.T.A.T.I.O.N. Paris attraction records a similar trend, we could possibly see in excess of 400,000 visitors over the 5-month stretch. 
  • The next school holiday in France will be in summer from early-July 16 to late-Aug 16, during which management expects another spike in ticket and merchandise sales. 

 Naming rights to Las Vegas property. 

  • Management has indicated that they have been speaking with various parties about the naming rights to the Las Vegas property that will house the Avengers S.T.A.T.I.O.N. and Transformers Experience exhibits. In Jan 16, The Las Vegas Review Journal reported that Wireless operator T-Mobile bought the naming rights to a US$375m property built by MGM Resorts International and Anschutz Entertainment Group for slightly less than US$6m per year (T-Mobile Arena). The length of the deal is believed to be in the 10-year range. 
  • Looking at the proximity between Treasure Island (where the exhibits will be located) and T-Mobile Arena as well as the fact that both properties face the Las Vegas strip, we expect that the naming rights could possibly fetch a rate comparable to that of the T-Mobile deal. 

 Ideal candidates for the naming rights. 

  • We believe that it would make sense for Cityneon to seek a Chinese mobile handset manufacturer such as Huawei, ZTE, Lenovo or Xiaomi as a naming rights sponsor for the Las Vegas property because: 
    1. the Samsung smart watch played a big role in Cityneon’s Seoul exhibit, 
    2. Cityneon has developed a dedicated app for use within the Avengers S.T.A.T.I.O.N. immersive attractions for both iOS and Android, 
    3. Cityneon’s partnership with Starclouds in China demonstrates its intent to focus on China. 
  • This would also provide a Chinese mobile handset manufacturer with the perfect avenue to advertise and penetrate the US market where 90% of the 42m annual Las Vegas visitors are from domestic grounds.

 High barriers to entry through established customer relationships and advanced technology. 

  • In 2013, VHE sealed a multi-year deal with Marvel Entertainment to produce and deliver engaging and interactive exhibitions to the global market. 
  • VHE spent more than a year and more than US$8.5m to develop and produce the original Avengers S.T.A.T.I.O.N. exhibition set which incorporates advanced 3D stereoscopic technologies, advanced robotics and projection mapping to captivate audiences. 

 Scalable business model with manageable execution risk. 

  • Cityneon currently has three completed exhibits globally with one more in the midst of construction in 2016. Two exhibits will be permanently housed in Las Vegas while the other two will be travelling exhibits with one currently in Paris and one with construction ongoing in China. 
  • We consider the VHE business model to be highly scalable as its earnings performance is correlated with the number of sets that the company has. 
  • Outside of the US, VHE operates based on a low execution risk model in which they find partners in the target region. 
  • We forecast Cityneon will deliver an explosive adjusted 3-year EPS CAGR of 107% in 2015-18. 

 Strong pipeline of movies all the way until 2020. 

  • Marvel has already planned its movie releases all the way to 2020 and beyond. 
  • Transformers on the other hand, is a relatively newer franchise as the first Transformers movie was only released in 2007 and since then there have been four movies with another four planned till 2019. 

 Endless opportunities in the Disney universe. 

  • When Disney first acquired Marvel in Aug 09 for US$4.2b, there were more than 5,000 characters in the Marvel library back then. Apart from the Marvel franchise, other franchises include Guardians of the Galaxy, X-Men and Fantastic Four
  • According to Licensemag.com, The Walt Disney Company is the largest global licensor in the world and recorded global licensed product retail sales of about US$45.2b in 2014. Today, Disney has 11 franchises under its belt that deliver in excess of US$1b in product sales. Among these billion-dollar franchises are Marvel, Toy Story, Frozen, Star Wars and Disney Princess
  • Given that Cityneon has established a relationship with Marvel, we expect that porting the business model to other franchises would be an exciting possibility and Cityneon is well-positioned in this regard as an extension of Disney’s marketing arm. 


  • No change in estimates. We maintain our estimates which forecast a 3-year EPS CAGR of 107% in 2015-18. 


 Maintain BUY recommendation with a PE-based target price of S$0.72. 

  • Our target price has an implied 2017F PE of 11.5x. This is based on a 10% premium to peers’ valuation of 10.5x 2017F PE on average. 
  • In our view, the 10% premium is conservative given Cityneon’s strong growth profile (3-year EPS CAGR of 107%). 
  • Based on our target forward 2017 PE ratio of 11.5x and the 3-year EPS CAGR of 107%, the implied 2017F PEG ratio is 0.1x. 


 Securing of naming rights. 

  • The naming rights will provide a steady stream of recurring income to the group with close to a 100% cost-pass through. 

 Additional intellectual property rights. 

  • Our forecasts have only accounted for the Hasbro and Marvel Entertainment intellectual property rights. 
  • If Cityneon is able to secure additional intellectual property rights for other franchises such as DC Comics or Star Wars, we will see further upside to our earnings forecasts and valuation. 

Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-04-28
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