CityNeon Holdings - UOB Kay Hian 2016-06-28: Site Visit: Adding Some Soul To Sin City

CityNeon Holdings - UOB Kay Hian 2016-06-28: Site Visit: Adding Some Soul To Sin City CITYNEON HOLDINGS LIMITED 5HJ.SI 

Cityneon Holdings (CITN SP) - Site Visit: Adding Some Soul To Sin City

  • We saw Cityneon’s permanent immersive attraction first-hand last week. Amid significant global macro uncertainty stemming from a slowdown in China and a British exit from the EU, Cityneon offers explosive growth potential with a low-risk profile. 
  • Maintain BUY with a higher target price of S$1.02.



WHAT’S NEW

  • We visited the Avengers S.T.A.T.I.O.N. in Las Vegas to get a first-hand experience of the immersive attraction.
  • Cityneon has announced a tie-up with Science Centre Singapore to bring the Avengers S.T.A.T.I.O.N. to Singapore. The group has also entered into an agreement with iLive Entertainment Group (iLive) to host and operate the Avengers S.T.A.T.I.O.N. in Australia.


STOCK IMPACT


A match made in heaven that has exceeded our expectations. 

  • In a nutshell, the exhibit unifies real props used in the Marvel movies with cutting-edge interactive technology creating an attraction for all ages. The Avengers S.T.A.T.I.O.N. brings the Marvel Cinematic Universe to life allowing visitors to get a look at their favourite costumes, learn trivia and play some games.

Device rental. 

  • The exhibit audio guide operates through an app which is available on both the Apple and Android stores. Our channel checks indicate that about 50% of visitors do decide to rent an in-house device for a small fee of US$5.

Avengers S.T.A.T.I.O.N. coming to the Little Red Dot and touring Down Under. 

  • Cityneon has tied up with Science Centre Singapore to bring the exhibition to Singapore in Oct 16. We expect the exhibition to run for around three months and attract about 100,000 visitors over the three-month period given the size of the population in Singapore. 
  • Cityneon also announced that the company has entered into a non-binding term sheet with iLive to host and operate the exhibition starting in Sydney, Australia. The exhibition is expected to open no later than 1 Dec 17.

Imitation is the sincerest form of flattery. 

  • On 23 Jun 16, CNN reported that the National Football League (NFL) and Cirque Du Soleil are partnering up to form a new NFL-themed immersive attraction that will open in Times Square New York sometime in 2017. The tie-up between Cirque and the NFL solidifies our belief in the Cityneon model and the prospects of the immersive attraction business.

Merchandise sales. 

  • Our channel checks indicate that about 40% of retail sales are from photo sales which are priced at US$35 per set. We have tweaked our merchandise spending per pax to rise as Cityneon progressively adds a larger range of items into the retail outlets and familiarises with consumer spending habits.


EARNINGS REVISION/RISK

  • We have raised our net profit estimates by 6-17% to account for the Singapore Science Centre exhibit, inclusion of device rental fees and higher per pax merchandise spending in later years.


VALUATION/RECOMMENDATION

  • Maintain BUY with a higher SOTP-based target price of S$1.02. 
  • Our target price has an implied FY17F PE of 14.9x which is a 42% premium to what peers (10.5x) are trading at.


SHARE PRICE CATALYST

  • Additional intellectual property (IP) rights. If Cityneon is able to secure additional IP rights for other franchises such as DC Comics or Star Wars, we see further upside to our valuation. 
  • Our 2% terminal growth assumption will likely be exceeded if additional IP rights are secured.




Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-06-28
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.02 Up 0.85


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