Cityneon Holdings (CITN SP) - UOB Kay Hian 2017-05-26: Out With The Old And In With The New

Cityneon Holdings (CITN SP) - UOB Kay Hian 2017-05-26: Out With The Old And In With The New CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings (CITN SP) - Out With The Old And In With The New

  • Since our last update, Cityneon’s major shareholder Star Media has entered into an agreement to dispose of their entire stake. 
  • Buoyed by a newer and more supportive investor base with more control lying with Cityneon’s CEO, we are more positive on the group’s prospects. 
  • Investors can continue to look toward explosive 2016-19 EPS growth with potential catalysts from new IP rights. 
  • Maintain BUY with a higher SOTP-based target price of S$1.28 (previously S$1.15).


Star Media disposing of Cityneon stake. 

  • Cityneon’s main shareholder Star Media Group Berhad (Star Media) has entered into a conditional sale and purchase agreement with Lucrum 1 Investment Limited to dispose of its entire 52.51% stake in Cityneon for a total consideration of S$115.6m in cash (S$0.90/share).

Opening of Avengers S.T.A.T.I.O.N. Beijing. 

  • We attended the opening of Beijing Avengers S.T.A.T.I.O.N. in Beijing Sun Park. In a tie-up with Beijing Starclouds Entertainment Development Co., Ltd, Cityneon has entered into an exhibition agreement to showcase the Avengers exhibit on top of the existing agreement for the Transformers Experience in China.


Entry of new majority shareholder. 

  • On 12 May 17, Star Media entered into a conditional sale and purchase agreement conditional with Lucrum 1 Investment regarding the sales of its 52.51% stake in Cityneon. This is conditional on the approval of its shareholders at an Extraordinary General Meeting (EGM) to be fulfilled on or before 31 Oct 17. 
  • Star Media acquired a 64.1% stake in Cityneon at S$0.61 per share in 2008. The transaction will allow Star Media to unlock its investment in Cityneon with a bumper disposal gain of around S$68.7m. The disposal will allow Star Media to concentrate on the expansion of its primary business activities.

Details of Lucrum 1 Investment. 

  • Lucrum 1 Investment is an investment holding company controlled by three key directors -
    1. Ron Tan, CEO of Cityneon owns a 15.5% stake in the vehicle with the balance held by 
    2. Chinese investment holding company Massive Right Investments Limited (76% stake) and 
    3. Mutual Power International Ltd (8.5% stake). 
  • Mutual Power International Ltd is a wholly-owned subsidiary of Hong Kong listed Jin Bao Bao Holdings Ltd. Jin Bao Bao. Jin Bao Bao specialises in the design, manufacture and sale of packaging products, provision of corporate secretarial and constancy services as well as property investment. 
  • Massive Right Investments Limited is wholly owned by Mr Geng Zhihua for the purpose of investing in high-growth potential companies.

Transaction bodes well for Cityneon. 

  • Once the acquisition is completed, we understand that Cityneon CEO Mr Ron Tan should have more influence and control over the expansion and future direction of Cityneon. 
  • In addition, we believe Cityneon could be more aggressive in M&A post the change in major shareholder.

Offer price not attractive for minority shareholders. 

  • Should Star Media get approval on the disposal during the EGM, this would trigger a mandatory general cash offer for the remaining issued shares of Cityneon. We believe the offeror intends to keep the public listing status of Cityneon as it would allow Cityneon easier access to capital markets in the event of any M&A opportunities. 
  • In our opinion, the offer price of S$0.90 (implied 2017/18F PE of 13.3x and 10.3x) does not adequately reflect the fair value of Cityneon given the explosive 2016-19 earnings potential of the company. 
  • In addition, the offer price is at a 30% discount to our target price of S$1.28/share for Cityneon.

Orderbook for 2017 is secured. 

  • Barring any unforeseen circumstances, the orderbook for 2017 is already planned and the group is already working on possible partnerships for 2018. 
  • We have adjusted our exhibit roll-out for 2017 and 2018 as well as introduce our 2019 exhibit roll-out forecast. We believe that each intellectual property (IP) should be able to comfortably sustain four exhibits.

Taking Beijing by storm. 

  • The opening of the Avengers exhibit in Beijing was very well received with more than 100 media partners gracing the occasion. Our physical and online channel checks indicate a very aggressive marketing promotional campaign before the opening of the exhibit. 
  • Disney China has also taken an active role in promoting the Avengers Exhibit for instance by packaging it with the Guardians of the Galaxy 2 movie release earlier this month.


  • We have adjusted our 2017/18 net profit estimates downward by 8/23% respectively as we now account for only one permanent set in Las Vegas rather than two. At the same time, we fine-tune our licensing fees from China and the rest of the world upward. 
  • We also introduce our 2019 estimates. On our latest estimates, Cityneon is projected to deliver an explosive 3-year EPS CAGR of 59% (2016-19).


Maintain BUY with a higher SOTP-based target price of S$1.28. 

  • Our target price has an implied 2018F PE of 14.7x which is a 23% discount to what peers (19.0x) are trading at. We believe that the discount is not justified given: 
    1. low risk profile, 
    2. strong growth prospects, 
    3. higher barriers to entry, 
    4. low payables risk as licensing fees and minimum guarantees are collected upfront, and 
    5. high ROE vs its peers.


  • Additional IP rights. If Cityneon is able to secure additional IP rights for other franchises such as DC Comics or other franchises, we see potential further upside to our valuation.

Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | 2017-05-26
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.28 Up 1.150