Cityneon Holdings - CIMB Research 2016-12-05: Transform, and roll out!

CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Transform, and roll out!

Exhibition production and distribution firm with Avengers and Transformers IP rights.
Key highlight is its scalable model for travelling sets with minimal execution risk.
Catalysts ahead include acquisition of more licensing rights and travelling sets.

Cityneon’s acquisition of the IP rights to Marvel’s Avengers and Hasbro’s Transformers via Victory Hill Exhibitions (VHE) in Sep 15 have transformed the company’s business beyond its traditional events and exhibitions. These licensing rights are exclusive and valid until 2024 and 2023, respectively.
While its traditional business of designing and developing exhibitions and experiential environment was loss-making as of 1H16, the company is hopeful of turning it around to profitability.
Cityneon posted a S$4.7m core net profit in 1H16.

The permanent installation of the Avengers Station was launched in Las Vegas at the Treasure Island hotel in Jun 16, with year-to-date ticket sales tracking in line with management’s expectations and better-performing merchandise sales.
The Transformers’ permanent set has been delayed to 1H17 to allow more time for technology development, and could be relocated to a bigger site along the Las Vegas strip. This may allow for better cross-selling and wider reach of visitors.
Management targets to attract 1-1.5% of the total annual visitorship of 40m to Las Vegas for both permanent installations.

VHE developed its first Avengers S.T.A.T.I.O.N set which was put on display in New York for 15 months, before making stops in Seoul, Paris and more recently at the Singapore Science Centre. Cityneon has announced two other locations (Taiwan and Australia) for 2017, as well as a 2-year agreement for the first Transformers set in China, with more anticipated in the pipeline.
We like the scalable model of travelling sets for a few reasons:
1. minimal execution risk as it lies with the local partners,
2. earns licensing fees (depending on duration of set) and variable royalties based on projected budget,
3. better margins, and
4. smaller capex needs (subsequent sets typically cost US$2m-3m, vs the initial capex of US$6m-9m).

Apart from the existing licensing rights, management is keen to expand its existing product offerings, in the form of core IPs. If successful, this could catalyse the stock further.
These IPs are expected to be more sustainable, and should fit with the following criteria:
1. family-friendly,
2. have global movie takings of more than US$1bn, and
3. more sequels in the future.

We lower our FY16-18F EPS estimates by 4-10% to reflect Transformers’ delay and smaller sales contribution from Vegas.
Maintain Add with a higher target price of S$1.41 as we roll over to FY18 P/E of 15x, at 10% discount to peers’ average.
Downside risks include further delays of the Transformers launch and slower-than-expected uptake of travelling sets.

NGOH Yi Sin CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2016-12-05

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.41 Up 1.190