MM2 ASIA LTD
43D.SI
mm2 Asia - Screening the Unusual business
- On 9 Jun, mm2 proposed the separate listing of Unusual Group (current 51% stake). The listing could be completed as early as 1Q17, based on our estimates.
- Unusual was acquired at 10.2x forward P/E and could offer synergies to mm2’s core business of content production, in our view.
- The listing potentially unlocks value for mm2 but stake dilution would dent mm2’s FY3/17 earnings slightly.
- Our EPS forecasts and target price are unchanged. However, we downgrade mm2 from Add to Hold due to limited upside, as the news have likely been fully priced in.
Potential listing of Unusual
- mm2 recently announced the proposed listing of UnUsUal group of companies (“Unusual”) on SGX-Catalist. Apart from organising trade shows and outdoor events like the Singapore Grand Prix, Unusual produces and promotes concerts for performing artistes in the region.
- As the talks are still in preliminary stages, we think that the earliest the listing could be completed is 1Q17, should it materialise.
mm2 acquired 51% stake in Unusual at 10.2x P/E
- To recap, mm2 announced the proposed acquisition of 51% stake in Unusual in Feb 2016 for purchase consideration of S$26m (US$19m) via a mix of cash and new shares. Based on net profit target of S$5m p.a. for FY17-19, this implies acquisition forward P/E of 10.2x. We viewed the acquisition positively, as it could offer synergies for mm2’s core business of content production.
Why the Unusual spin-off?
- Unusual is a leading producer of shows and entertainment acts in Asia. It aims to bring and promote concerts in more cities in China, which would position it for the next phase of growth.
- A separate listing would enable Unusual to command higher valuations (regional concert producers trade at 42x/22x CY16/17 P/E on average) and access public funds for expansion, while unlocking value for mm2. The stock is currently trading at 24.6x FY17 P/E and 20.2x FY18 P/E.
Mainly positive on proposed spin-off
- The key concern arising from the proposed spin-off is the reduction in ownership level. We estimate 2-3% drop in mm2’s FY17-19F PATMI if it decides to pare down its stake in Unusual to 40%. This could be offset by stronger earnings growth by Unusual and a one-off divestment gain from the stake sale.
- Assuming eventual ownership of 40% and spin-off valuation of 15x, mm2 could gain net proceeds of S$8.3m (US$6m) and realise gain of S$2.6m (US$2m). Unusual currently makes up about 14% of our FY17F PATMI.
Maintain EPS forecasts and TP of S$0.73, but downgrade to Hold
- Overall, the merits of Unusual listing depend on:
- mm2’s eventual ownership level, and
- Unusual’s listing valuation.
- We keep our EPS and target price intact (still pegged to peers’ average of 22x CY17 P/E) but downgrade to Hold due to limited upside.
- Re-rating catalysts are earnings-accretive acquisitions and stronger movie production pipeline. Key downside risk is delay in production.
NGOH Yi Sin
CIMB Securities
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William TNG CFA
CIMB Securities
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http://research.itradecimb.com/
2016-06-12
CIMB Securities
SGX Stock
Analyst Report
0.73
Same
0.73
