Cityneon Holdings - CIMB Research 2017-05-31: Avengers Arrive For China Premiere

Cityneon Holdings - CIMB Research 2017-05-31: Avengers Arrive For China Premiere CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Avengers Arrive For China Premiere

  • We visited the official opening of Marvel’s Avenger Station in Beijing last week, which was well-attended by media and business associates.
  • 1st stop in China was Chaoyang Park, Beijing’s biggest outdoor park which is popular among locals and expats. Next stop tentatively set for Chongqing after Aug 17.
  • Tripartite cooperation with strong local partners and Disney/Marvel should help ensure successful execution of travelling sets for Cityneon, in our view.
  • Maintain Add; potential catalyst is 3rd IP acquisition, while weaker footfall to Vegas’ set and slower-than-expected uptake of travelling sets could pose downside risks.

1st stopover in China 

  • We visited Cityneon’s Avengers Station in Beijing Chaoyang Park last week. Its debut in China was jointly organised by local partner, Beijing Starclouds Entertainment. 
  • The grand opening was well-attended by both media and business associates, and also registered some pre-sales packaged along with the ticket sales for Guardians of the Galaxy 2 movie release, over a short span of two weeks. 
  • We also spoke to Starclouds’ management and met with some future operators of the travelling sets.

Well-supported by Disney and operating partners 

  • Across the various touring exhibits we visited, we observed that local partners (Starclouds, Singapore Science Centre, TF1 Group etc.) are integral to their successful execution, in terms of sales, marketing and operational logistics. 
  • We also witnessed how the IP licensors (Disney and Marvel representatives) often play a hands-on role in promotion, overseeing quality control and giving feedback to Cityneon. Such tripartite cooperation should strengthen commercial viability of these travelling sets, in our view.

Growing pipeline of travelling sets 

  • Apart from the Avengers Station in Beijing (Jun-Aug 17 followed by Chongqing), the temporary set will also travel to Taiwan (Jun-Sep 17), and Russia (end-2017). The 2-year agreement with Starclouds for Transformers is also estimated to commence in Nov 17.
  • We expect three more locations in the pipeline to be confirmed for FY17-18F.

Checking out competitors’ VR indoor theme park 

  • We also visited a competing virtual reality (VR) attraction “SoReal” located within a Beijing shopping mall, and left feeling impressed with the creativity and affordability of the games and activities, relative to Cityneon’s Avengers Station. This VR start-up is cofounded by famous Chinese film director Zhang Yimou and Lenovo Group. 
  • With rising VR popularity in China, we believe there is scope for Cityneon to incorporate more of such elements in their future exhibits.

Business model is attractive, albeit with some risks 

  • We think Cityneon’s business model is attractive premised on: 
    1. their exclusive 10-year IP rights from Marvel and Hasbro which raises the barriers to entry, 
    2. upfront licensing fees of US$1m-5m per agreement depending on duration and location, and 
    3. scalability of travelling exhibits in different geographical regions. 
  • However, the company also faces risks from 
    1. lumpy contracts for its traditional events and theme parks business, 
    2. visitorship to the Las Vegas’ permanent set, and 
    3. take-up rate of travelling sets.

No change to EPS estimates and TP, maintain Add 

  • We retain our FY17-19 forecasts, S$1.27 TP (pegged to 15x FY18 P/E, peers’ average) and Add call. 
  • Catalysts: 3rd IP acquisition and stronger uptake of travelling sets. 
  • Near-term share price may be limited by offer price to major shareholder (Star Media).

NGOH Yi Sin CIMB Research | William TNG CFA CIMB Research | 2017-05-31
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.270 Same 1.270