Spackman - RHB Invest 2016-12-27: Turnaround Validated – Master a Blockbuster

SPACKMAN ENTERTAINMENT GRP LTD 40E.SI

Spackman - Turnaround Validated – Master a Blockbuster

Over the Christmas holidays, Master has been a big hit, accumulating over 3m ticket sales and capturing over 55% of Korea’s ticket revenue share just over four days of its release, affirming its status as a blockbuster. Its popularity exceeded our expectations.
As such, we raise our ticket sales estimates to 8.5m (from 7.5m), and raise FY16F NPAT by 300%.

With the success of the movie validating Spackman’s credentials as a movie producer – and its turnaround – we maintain BUY, lifting our TP to SGD0.32 (from SGD0.22, 68% upside), implying 18x FY17F P/E.

Master, a Korean crime-action film, opened at the top of the Korean box office on the first day of its release (21 Dec) and maintained its position throughout the Christmas holidays, capturing over 55% of Korea’s total box office revenue over the period. As of 25 Dec, they have accumulated over 3m ticket sales grossing over USD20m, just over four days of release, which is a very remarkable feat.
To put things into context, movies like the animation Sing, released on the same date, accumulated only 0.57m ticket admissions over the same period. Pandora, another Korean movie released on 7 Dec, has accumulated 3.9m ticket sales till 25 Dec.
Our channel checks locally have also shown that Master is a bit hit among the locals, having also generated positive media coverage. With the new year holidays next week, we expect such strong ticket admissions to likely continue.
The distribution rights have been presold to 31 countries, with the foreign release of Master to be launched in the US, followed by Hong Kong, Taiwan and Singapore. This is a positive sign for Spackman, and provides ancillary revenue in addition to its box office sales in Korea.

With the divestment of loss-making Opus Pictures reducing SG&A costs by a significant 70%, Master’s performance would likely be an additional impetus to bounce it back into profitability, laying the foundation for returning to the black in FY17. Its other production house, Zip Cinema Co Ltd, has a good track record and aims to film one to two movies pa. Coupled with Spackman’s joint ventures (JVs) to film other movies, these factors are likely to spur growth, going forward.

With the strong performance of Master, we raise our expectation of total ticket admissions by an additional 1m to 8.5m, which would yield profit of USD7m and easily bring Spackman back into the black. As a result, our FY16F NPAT is raised by 300% to USD1.76m.
With lower operating expenses with the disposal of Opus pictures, the success of the movie validating Spackman’s credentials as a movie producer and its turnaround, we maintain BUY and raise our TP to SGD0.32, which implies 18x FY17F P/E.
We also expect Spackman to continue to produce at least two to three movies for FY17F. The key risk to our forecasts would be the uncertainty as to movie ticket sales.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-12-27

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.32 Up 0.220