CITYNEON HOLDINGS (CITN SP) - UOB Kay Hian 2017-08-16: 1H17 Results In Line; Intellectual Property Driving Growth

CITYNEON HOLDINGS (CITN SP) - UOB Kay Hian 2017-08-16: 1H17 Results In Line; Intellectual Property Driving Growth CITYNEON HOLDINGS LIMITED 5HJ.SI

CITYNEON HOLDINGS (CITN SP) - 1H17 Results In Line; Intellectual Property Driving Growth

  • Cityneon’s 1H17 results were in line with our expectations. The intellectual property (IP) division continues to drive growth. 
  • With the general offer from Lucrum 1 to close on 29 Aug 17, we expect Cityneon to be on a firmer footing with Ron Tan, Cityneon’s CEO, to have more influence on the strategy and direction of the company. 
  • The company is in talks to acquire a new IP rights.
  • Maintain BUY and SOTP-based target price of S$1.28.



VALUATION

  • Maintain BUY and SOTP-based target price of S$1.28. 
  • With the intellectual property (IP) business chugging along nicely, it is no surprise that Cityneon is looking to potentially boost its portfolio of IP rights as it is in talks to acquire a third IP by 3Q17. 
  • We could see upside to our target price should the acquisition be EPS accretive.


FINANCIAL HIGHLIGHTS


Net profit in line with our estimates. 

  • 1H17 net profit came in at 46.7% of our full-year estimate. 1H17 net profit rose 62.4% yoy to S$7.7m, driven by sustained growth in the IP segment which revenue grew 60.8% yoy to S$16.5m (1H16: S$10.2m) due to the opening of Marvel Avengers S.T.A.T.I.O.N. exhibition in Taipei and Beijing.
  • Performance of the traditional business was weaker yoy in 1H17 as revenue fell 7.9% yoy due to the absence of biennial shows such as Food & Hotel Asia and completion of certain thematic projects in Asia Pacific in 2016. However, even though revenue was weaker yoy in 1H17 but due to cost rationalisation efforts, we suspect net profit for 1H17 came in stronger yoy. 
  • Overall, we expect a seasonally stronger performance from the traditional business in 2H17.
  • Margins trended upwards due to a better sales mix from the IP segment. IP revenue grew from 22% of total revenue in 1H16 to 33% in 1H17, resulting in an 8ppt pick-up in gross margin.


OUR VIEW


Potential third IP rights on the way. 

  • Cityneon is in discussions to acquire a third IP rights, which will boost its existing portfolio to three IP rights. As indicated in our previous updates, Cityneon’s criteria for IP rights are:
    1. global movie takings in excess of US$1b; and
    2. a pipeline of sequels. 
  • Potential IP rights that fit these criteria are Star Wars, Pirates of the Caribbean, Harry Potter and Jurassic World which raked in US$2.1b, US$1.1b, US$1.3b and US$1.7b for each sequel’s top grossing movie respectively. 
  • Negotiations are expected to end in 3Q17. 

General offer to close on 29 Aug 17. 

  • Lucrum 1 Investment’s general offer for all the issued and paid up ordinary shares of Cityneon at S$0.90/share will close on 29 Aug 17. We recommend shareholders to REJECT THE OFFER as it is at a significant discount to our target price of S$1.28 and at a discount to current share price.


STOCK IMPACT

  • No change to our earnings forecasts.




Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-16
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.280 Same 1.280



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