Cityneon Holdings - CIMB Research 2016-08-12: Turnaround led by immersive exhibits

Cityneon Holdings - CIMB Research 2016-08-12: Turnaround led by immersive exhibits CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Turnaround led by immersive exhibits

  • 1H16 core net profit of S$4.7m (US$3.5m) above our/consensus FY16 numbers; also marked CITN’s turnaround from loss-making in 1H15, thanks to VHE.
  • VHE’s travelling sets skewed our 1H16 earnings and margins upwards.
  • Higher ASP, retail sales contributed to Vegas’ commendable performance in June.
  • We raise our FY16-18F EPS estimates and target price to S$1.19. Maintain Add.
  • Winning of 3rd licensing right a near-term catalyst; key risk lies in execution of Transformers in Vegas.

Turned around from 1H15 loss in 1H16 , thanks to VHE 

  • CITN’s 1H16 core net profit of S$4.7m beat expectations at 82%/71% of our/consensus full-year forecast, leapfrogging its S$0.7m core net loss in 1H15, before it acquired Victory Hill Exhibitions (VHE). 
  • Ex-VHE, core business sales declined 11.3% yoy in a seasonally-weaker 1H16, and while gross margin improved to 25% (1H15: 23.5%), the core business stayed loss-making. 
  • Management aims to achieve profitability for this segment, which also benefitted from increasing awareness of VHE, by end-16.

Travelling sets proved its scalable, high-margin model 

  • VHE contributed S$10.2m sales in 1H16, of which c.30% came from the Avengers’ permanent set in Las Vegas (only opened in Jun 16), and the balance 70% from travelling sets. The results beat was due to a combination of 
    1. better-than-expected sales performance from Vegas, and 
    2. partial recognition of China’s licensing fees ahead of its Transformers’ touring exhibit (Dec 16 – Dec 18). 
  • The sales mix changes lifted CITN's overall gross margins from 1H15’s 23.5% to 1H16’s 38.8%.

Vegas revenue boosted by higher ASP and merchandise sales 

  • We think the strong sales performance of Vegas’ Avengers S.T.A.T.I.O.N can be attributed to the higher ASP of c.US$30 (vs. US$28 previously) on top of ticket admin fees of US$5 per pax and equipment rental of US$5, as well as merchandise sales. 
  • Management plans to expand the existing retail space to fit a wider merchandise range to ride the popularity of Avengers’ superheroes. The attraction is also more popular in the daytime, as seen by the 65/35 traffic flow in AM vs. PM session.

FY16-18F EPS estimates up by 5-48% 

  • We adjust our assumptions to account for the following: 
    1. full amount of licensing fees from China’s Transformers set in FY16, 
    2. lower operating costs in FY16, and 
    3. higher sales contribution from Vegas for FY16-18. 
  • The adjustments lift our FY16-18 EPS estimates by 5-48%, and our target price rises to S$1.19 (still pegged to 15.5x FY17F P/E, 5% premium to peers’ average). Reiterate Add.

3 rd IP a key catalyst; naming rights can offer more earnings upside 

  • Near-term catalysts for CITN could come from 
    1. successful launch of the Transformers’ exhibit to further drive traffic flow to its Vegas attractions, and 
    2. winning of 3rd licensing right. 
  • Downside risk to our Add call is lower-than-expected ticket sales in Las Vegas. 
  • We also see the potential for a dividend resumption from FY17 onwards, based on its historical payout ratio of 30-35% and strong earnings momentum.

NGOH Yi Sin CIMB Research | William TNG CFA CIMB Research | 2016-08-12
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.190 Up 1.090