mm2 Asia - CIMB Research 2016-05-18: Venturing into US film production

mm2 Asia - CIMB Research 2016-05-18: Venturing into US film production MM2 ASIA LTD 43D.SI 

mm2 Asia - Venturing into US film production 

  • Maiden US co-production “Good Match” could be a good start to more international collaborations. 
  • Also announced 19 third-party distribution titles for FY3/17 (vs. nine in FY16), and S$8m partnership with Singapore’s MDA to develop budding local scriptwriters. 
  • Reiterate Add, with unchanged target price of S$0.70 (pegged to 22x CY17F P/E). 

First US co-production “Good Match” 

  • mm2 announced its first co-production “Good Match” with Boulderlight Pictures, a US-based production company behind notable productions like “Dementia”, “Contracted” and “Uncaged”. Production budget is estimated to be minimal at US$0.35m. 
  • “Good Match” is written by screenwriter David Chirchirillo, a rising new voice in independent cinema based on his previous credits of “Cheap Thrills” (SXSW Midnight Award winner) and “Eli”. “Eli” was selected for the Black List 2015, whose previous screenplays include “Slumdog Millionaire”, “The King’s Speech” and “Argo”. 
  • “Good Match” will commence production in Jul-16 and is expected to be released in 2017. If successful, this may pave the way for bigger productions with international production studios. 

Acquisition of 19 film distribution rights for FY3/17 

  • Apart from movies produced and co-produced by its group of companies, mm2 also recently acquired shared distribution rights (with Clover Films) for 19 movies in Singapore and Malaysia. This compares favourably against the nine distribution titles it acquired in FY3/16. 
  • Among the 19 titles are China and HK big productions starring Jackie Chan in Railway Tigers, and Zhao Wei and Louis Koo in Three. Exceptional box office reception for the 19 movies is likely to result in potential upside on the FY17 distribution income for mm2. 

Singapore’s MDA lent support of up to S$8m 

  • mm2 continues to benefit from favourable government support in the regional countries. mm2 recently inked a partnership with the Media Development Authority of Singapore (MDA) to develop local Chinese language scriptwriters. 
  • Under the three-year programme, which has a total budget of S$8m, mm2 will not only conduct workshops to train aspiring scriptwriters, but also have the opportunity to further develop good scripts into films, thereby enhancing the total production value. 

Reiterate Add with TP of S$0.70 (based on 22x CY17 P/E) 

  • We keep our assumptions and target price of S$0.70, still pegged to CY17F P/E of 22.0x (peer average) and backed by 3-year forward EPS CAGR of 28.8%. 
  • Potential catalyst for the stock is stronger traction in movie production in the US and other international markets.

NGOH Yi Sin CIMB Securities | William TNG CFA CIMB Securities | 2016-05-19
CIMB Securities SGX Stock Analyst Report ADD INITIATE ADD 0.70 Same 0.70