Mm2 Asia - CIMB Research 2017-05-25: Keep The Camera Rolling, And Earnings Coming

Mm2 Asia - CIMB Research 2017-05-25: Keep The Camera Rolling, And Earnings Coming MM2 ASIA LTD. 1B0.SI

Mm2 Asia - Keep The Camera Rolling, And Earnings Coming

  • FY3/17 core PATMI of S$18.8m (+130% yoy) formed 107% of our forecast.
  • All segments reported strong growth, and we expect organic expansion (North Asia penetration for movie-making) and M&As to remain as the key drivers for mm2.
  • Unusual’s annualised core net profit met its S$5m profit target. We expect stronger earnings contribution to mm2 in FY18-20F, backed by its pipeline of artiste tours.
  • Potential 50% stake acquisition of GV Singapore cinemas could translate into additional S$11m earnings for mm2.
  • Maintain Add with higher SOP-based TP of S$0.65, on higher earnings estimates.

FY17 EPS of 1.8Scts doubled from FY16’s 0.9Scts 

  • Mm2 reported FY17 core PATMI of S$18.8m, slightly above our forecasted S$17.5m, mainly led by robust growth in core production (+85% yoy) and contribution from the newly-acquired Unusual (41.9% stake) as they accounted for 81.7% of overall topline.
  • We also saw growth in both cinema (+158% yoy) and post-production operations (+35% yoy). 
  • FY17 gross margin was steady at 47.5% (FY16: 48.0%), while operating cashflow improved from S$3.7m negative outflow in FY16 to S$9.0m inflow.

Unusual’s pipeline of artiste tours building momentum 

  • Unusual also reported a strong set of results, with 15M16 (Jan-16 to Mar-17) sales of S$33.9m (FY12/15: S$16.1m) and better gross margins of 35.0% (FY12/15:30.3%), which generated a core net profit of S$7.3m. 
  • Apart from bringing Foo Fighters to Singapore, Unusual also announced two sold-out nights for Jacky Cheung’s “A Classic Tour” to Zhongshan, China, where the company will be co-organising his concert. 
  • We believe more artiste tours are in the pipeline to lift its contribution to S$10.2m in FY18F.

Strategic partners could elevate profile and complement resources 

  • For core movie/TV production, we continue to see positive progress in North Asia, as the region represented 56% of mm2’s FY17 production revenue, up from 36% in FY16. 
  • Its upcoming partnerships with Rhizophora Ventures/Pinewood Iskandar Malaysia (“PIMS”) and Turner on co-production projects bode well for the company, as it not only gained access to alternative content distribution channels and a world-class filming facility at PIMS studios, but could also benefit from potential cost-savings and funding.

Cinema expansion to take centre stage in FY18 

  • mm2 is currently the 4th largest cinema operator in Malaysia with a combined cinema screens of 133 (acquired Cathay, Mega Cineplex and Lotus Fivestar Cinemas). 
  • Apart from investing in cinema management services via a 19.7% stake in Cinema Pro, the company is also in talks to possibly purchase Village Cinemas’ entire 50% stake in Golden Village (GV) cinemas in Singapore, which owns 11 cinemas, 91 screens and 44% market share. If this materialises, we estimate this could add c.S$11m to its bottomline.

Add call kept with higher SOP target price of S$0.65 

  • We raise our FY18-19F EPS estimates by 6.0-6.3% to factor in marginally higher production revenue and better gross margins, offsetting lower cinema sales contribution.
  • We also introduce our FY20F forecasts. 
  • Our SOP-based target price increases to S$0.65; maintain Add with earnings-accretive M&As as a key catalyst. 
  • Unexpected production delays or cost overruns could pose downside risks to our Add call.

NGOH Yi Sin CIMB Research | William TNG CFA CIMB Research | 2017-05-25
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.650 Up 0.600