Cityneon Holdings - CIMB Research 2017-02-23: Smashing good full-year results

CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Smashing good full-year results

Excluding one-off items of S$1.4m, FY16 core net profit was in line at 105% of our forecast.
FY16 core EPS expanded over 300% yoy, thanks to its recent VHE acquisition.
Lumpy earnings recognition of travelling sets (mostly in 1H16); Avengers Station at Las Vegas performing within expectations.

Confirmed incoming FY17 exhibits include Avengers Stations in Taiwan, Australia and China. Management also aims for more theme park project wins.
Reiterate Add with lower TP; acquisition of 3rd IP could catalyse the stock.

Cityneon reported FY16 net profit of S$6.7m (+667% yoy), accounting for 87%/88% of our/Bloomberg consensus full-year numbers.
This might appear a miss, but stripping out one-off expenses of S$1.4m attributed to
1. VHE acquisition, and
2. pre-opening marketing expenses at Vegas’ Avengers Station,
FY16 core net profit (S$8m) was in line with our full-year forecast.

VHE contributed only S$17.7m or 18% of Cityneon's revenue but close to 90% of group FY16 net profit, thanks to the 76% GPM vs. 25% for Cityneon's ex-VHE businesses.
We estimate the majority of travelling sets (Transformers Experience China and Avengers Station Paris) was recognised in 1H16’s S$10.2m sale under the intellectual property (IP) rights segment.
Temporary exhibits in the pipeline that will contribute to FY17 topline include Avengers Stations in Taiwan, Australia and China.

Assuming 2H16’s S$7.4m IP rights sales stemmed mainly from the Avengers Station at Vegas, our back-of-the-envelope calculation indicates that its year-to-date visitor number is tracking along management’s annual target of 200k per permanent installation.
We believe Avengers Station at Vegas would continue to attract tourists, given its immersive exhibits and strategic location along the Vegas strip coupled with Marvel's robust movie pipeline till 2020.

The ex-VHE existing business of Cityneon also reported good 2H16 results, turning around from 1H16’s slight net loss to S$0.7m for the full-year.
Apart from embarking on a strategic review of these divisions which could lead to cost savings of S$4m, management sees ample opportunities in the theme park space (e.g. HK Disneyland expansion, Shanghai Legoland and Singapore Wildlife Reserves), backed by its successful track record.

We cut our FY17-18F EPS by 10-11% as we now account for only one permanent set in Vegas. This results in a lower target price of S$1.27, still pegged to 15x FY18F P/E (peers’ average). We also introduce our FY19F numbers. Cityneon remains an Add.
Potential re-rating catalysts are the acquisition of a 3 rd IP and successful launch of the Transformers’ travelling set.
Downside risks to our rating are slower-than-expected uptake of travelling sets and lower visitor numbers to its permanent installation at Vegas.

NGOH Yi Sin CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-02-23

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.27 Down 1.410