Cityneon Holdings - CIMB Research 2017-05-15: Potential Change Of Controlling Shareholder?

Cityneon Holdings - CIMB Research 2017-05-15: Potential Change Of Controlling Shareholder? CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Potential Change Of Controlling Shareholder?

  • Star Media was offered S$0.90/shr for its 52.5% stake in Cityneon, conditional upon its shareholders’ approval, valuing the company at 33x FY16 P/E.
  • If Star Media agrees, this would trigger a mandatory GO for minority shareholders.
  • Successful management buyout could see more aggressive expansion for the firm, in our view.

Offer to buy out Star Media at S$0.90/shr

  • On 5 May 2017, Star Media Group, a major shareholder of Cityneon, was offered via its wholly-owned subsidiary (Laviani Pte Ltd) S$0.90/shr to dispose of its 52.5% stake in Cityneon to Lucrum 1 Investment (the offeror), to be fully satisfied by cash.
  • This offer price represents a 5.8% discount to its last trading price of S$0.96, but a premium of 3.9% over its volume-weighted average price of S$0.87 over the past three months.
  • Star Media Group subsequently entered into a conditional sale and purchase (SPA) on 12 May 2017, of which completion is conditional on the approval of its shareholders at an extraordinary general meeting (EGM), to be fulfilled on or before 31 Oct 2017.
  • Lucrum 1 Investment is jointly owned by Mr Ron Tan (Cityneon’s CEO) and 2 other financial investors (Massive Right Investments and Mutual Power International), with respective shareholdings of 15.5%, 76.0% and 8.5%.

Why a management buyout?

  • Assuming a successful management buyout, we estimate that Massive Rights (solely owned by Chinese investor Mr. Geng Zhihua) will emerge as the largest shareholder of Cityneon with a c.40% stake, while Mr. Ron Tan will then own 24.5%, followed by Mutual Power’s 4.5% shareholding.
  • We believe this exercise gives Mr. Ron Tan greater say and flexibility in executing and influencing the future strategy and expansion of the company, with the support of the financial investors. 
  • Apart from the two existing IP rights (Avengers’ Station and Transformers), management is keen to extend its portfolio of licensing rights to launch more travelling sets globally.

Will Star Media sell?

  • Star Media previously acquired a 64.1% stake in Cityneon at S$0.61/shr in 2008, implying a transaction valuation of 15.1x FY07 P/E.
  • At an offer price of S$0.90/shr or disposal consideration of S$115.6m (RM360m), this translates into a proforma gain of S$68.7m (RM214m) for Star Media over Cityneon’s net asset value of S$46.9m (RM146m). This also values Cityneon at 3.2x historical P/BV and 33.0x FY16 P/E (26.4x core FY16 P/E).
  • We think this offer could be an opportunity for Star Media to offload a substantial stake and unlock its investment in Cityneon.

What should minority shareholders do?

  • Should Star Media agree to sell, this would trigger a mandatory general cash offer for the remaining issued shares of Cityneon, under Rule 14 of the Singapore Code on Take-overs and Mergers.
  • We note that it is the intention of the offeror to maintain the listing status of Cityneon, though this could be reevaluated if the public float falls below 10%.
  • The offer price of S$0.90 is not attractive, in our view, for minority shareholders, as it does not reflect the earnings potential from stronger roll-out of travelling sets (2017: Avenger Station for China, Taiwan and Australia), as well as a possibly better performance from Cityneon’s traditional business in experiential environments and exhibitions.

No change to Add call and FY17-19F forecasts

  • We keep our Add rating, F17-19F EPS estimates and target price of S$1.27 (pegged to 15x FY18 P/E) intact. 
  • Earnings-accretive M&As are potential catalysts and slower take-up rate of travelling sets could pose downside risks to our Add call.

William TNG CFA CIMB Research | 2017-05-15
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.270 Same 1.270