mm2 Asia - DBS Research 2016-06-10: Proposed listing of UnUsUaL Group

MM2 ASIA LTD 43D.SI

mm2 Asia (MM2 SP) - Proposed listing of UnUsUaL Group

mm2 Asia announced that its subsidiary, UnUsUal, has appointed professionals to prepare them for listing on the Catalist board of the SGX-ST.

mm2 acquired a 51% stake in UnUsUaL Group for S$26m back in February 2016.
UnUsUal Group is one of Asia’s largest promoters and organisers of shows and entertainment acts. The acquisition comes with a net profit guarantee for three years at S$5m per year. This works out to a PE of about 10.2x.
UnUsUal contributes about 15% to group earnings, based on our forecast of S$17.8m for mm2 in FY17F.

A separate listing for UnUsUal would enable mm2 to crystallize gains and to unlock value, and allow UnUsUal to tap on public funds for expansion.

mm2 is currently trading at 19.7x FY17F PE and 16.3x based on FY18F earnings. Assuming UnUsUal lists at >10x PE but at discount to mm2’s valuation as mm2’s business is more diversified, mm2 would be able to realize gains on its investment. We tabulate our assumptions below :
The proceeds from the stake sale of about S$8m to S$14m based on our assumptions, if materializes, would enable mm2 to embark on its growth path to propel to greater heights. Potential gain could range from about S$3m to S$6m if the sale materializes. One of the growth areas is China. The group has already co-produced several productions in China since 2013 and is currently working on a few movies there. Chinese films generally have bigger budgets and better margins than local productions.
Even if mm2 decides to retain its 51% stake in UnUsUal, the Group would still be able to realize book value gains if UnUsUal is able to list at >10x PE.
Maintain BUY on mm2, TP: S$0.75.

LING Lee Keng DBS Vickers | http://www.dbsvickers.com/ 2016-06-10

DBS Vickers Analyst Report BUY Maintain BUY 0.75 Same 0.75