mm2 Asia - DBS Research 2016-09-13: Growing presence in North Asia

mm2 Asia - DBS Vickers 2016-09-13: Growing presence in North Asia MM2 ASIA LTD. 43D.SI

mm2 Asia - Growing presence in North Asia

  • Rising contribution from Advertising, another component of core business.
  • Presence in entire film creation value chain opens up numerous avenues to venture further.
  • Expect North Asia to account for >70% of core revenue from FY17F.
  • Maintain BUY with higher TP of S$0.95.

North Asia to account for >70% of core revenue. 

  • We expect North Asia, including China, Hong Kong and Taiwan, to contribute > 70% of core revenue from FY17F, up from 23% in FY16. Upside to earnings could come from more projects, especially in China where the budget is much higher.
  • We project mm2 to grow at an EPS CAGR of 54% from FY15- FY18, underpinned by growth in productions, expansion into the China market, and contributions from cinema operations and newly acquired entertainment company, UnUsUal Group.
  • The entry of StarHub with a 9.05% stake could raise its profile and pave the way for bigger opportunities ahead. We maintain our BUY call on mm2 with a higher target price of S$0.95.

UnUsUal listing. 

  • The successful listing of UnUsUal, which mm2 acquired at 10.2x PE back in February 2016, would enable mm2 to crystallise gains and to unlock value, and allow UnUsUal to tap on public funds for expansion.


Maintain BUY with higher TP of S$0.95. 

  • mm2 is trading at 22x FYMar17F PE and 17x FY18F PE, based on its enlarged share capital, compared to peers’ 24x FY17F PE. 
  • Using peers’ average of 24x, we derive a higher target price of S$0.95 (Prev S$0.83) before factoring the 1-for-2 stock split announced on 1 September, after rolling our valuation to blended FYMar17F and FY Mar18F EPS. 
  • The stock offers potential upside of 23%, and trades at an attractive PEG of 0.28x. 
  • Maintain BUY.

Key Risks to Our View

  • No long-term financing arrangements for productions. The commencement of each production is dependent on mm2’s ability to secure funding.
  • Availability of good scripts. Lack of good scripts for production may lead to less support from stakeholders.

Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2016-09-13
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.95 Up 0.830