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mm2 Asia - DBS Research 2016-05-25: Strong growth profile

mm2 Asia - DBS Research 2016-05-25: Strong growth profile MM2 ASIA LTD 43D.SI 

mm2 Asia - Strong growth profile

  • FY16 earnings beat expectations
  • Expect higher contributions from North Asia
  • New revenue stream from UnUsUal; cinemas to build recurring income base
  • Maintain BUY with higher TP of S$0.75



Stellar FY16 results. 

  • mm2 posted strong growth in both revenue and profit for FY16. Gross margin improved to 48% from 44% in FY15. 
  • We expect mm2 to grow at an EPS CAGR of 62% from FY15-FY18, underpinned by growth in local productions, expansion into the China market, and contribution from cinema operations and newly acquired entertainment company, UnUsUal Group
  • The entry of StarHub with a 9.05% stake 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$0.75.


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:

  • Maintain BUY with higher TP of S$0.75. 
  • We have adjusted earnings for FY17 and FY18 up by 6-7%, after factoring in higher margins from cinemas and its recent acquisitions. mm2 is trading at 17x FYMar17F PE and 14x FY18F PE, based on its enlarged share capital, compared to peers’ 22x FY17F PE. 
  • Using peers’ average of 22x, up from 20x, we derive a higher target price of S$0.75 on FYMar17F EPS, from S$0.63 previously. 
  • The stock offers potential upside of 29%, and trades at an attractive PEG of 0.23x. 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/ 2016-05-25
DBS Vickers Analyst Report BUY Maintain BUY 0.75 Up 0.63


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