mm2 Asia - CIMB Research 2016-07-29: A beginning song

mm2 Asia - CIMB Research 2016-07-29: A beginning song MM2 ASIA LTD 43D.SI 

mm2 Asia - A beginning song

  • 51/49 JV to partner with local established songwriter on music production.
  • Minimal investment and earnings contribution in the near term, but offers potential synergies and a music platform aimed towards the bigger China market. 
  • No change to our forecasts, target price and Hold recommendation.

Movies, dramas, concerts, and now music production

  • mm2 announced a 51:49 joint venture with local songwriter/ composer Dick Lee for collaboration in music production and distribution, artist development, creative direction and consultancy.
  • Music composers typically receive royalties from their songs, in various forms such as performance, publishing, reproduction and YouTube. Size of fees vary depending on a song’s popularity.
  • While total investment is expected to be S$0.4m with minimal earnings contribution for FY17-19, we think mm2 can benefit from both broader content offerings and the uncovering of new talent. This also marks mm2’s next step towards becoming a more diversified entertainment group, following its acquisition of a 51% stake in Unusual Group. We believe there could be more plans in the pipeline.

A music platform aimed towards the bigger China market

  • Dick Lee is one of Singapore’s best-known music personalities, with an established track record in not only song composition, but also in plays and musicals. Some of his notable works comprise National Day theme song “Home” and Jacky Cheung’s “Snow.Wolf.Lake”, and he was appointed as creative director for Singapore’s 50th National Day Parade in 2015.
  • We also note the rising popularity of Singaporean star Nathan Hartono, who was recently featured in season 1 of “Sing! China” and won praise from all four judges. This singing sensation could direct more attention towards the local entertainment scene.
  • According to PWC “2015-19 China entertainment and media outlook”, China’s music market is projected to grow from US$790m in 2014 to US$1.05b in 2019, with digital sales and live music as the main drivers. Tailwinds for the industry include greater government support and a push for more licensed paid music services.

No change to forecasts; Hold rating maintained

  • As there is little earnings contribution expected from this proposed JV, we retain our FY3/17-19 forecasts and Hold recommendation. Our target price remains unchanged at S$0.73 (pegged to a CY17F P/E of 22x, the peer average). 
  • Re-rating catalyst would be earnings-accretive M&As and greater traction in North Asia; key downside risk is unexpected delay in production.

NGOH Yi Sin CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-07-29
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.73 Same 0.73