UnUsUaL Limited - NRA Capital Research 2017-08-11: Powerful Mix Of High Growth And High Profitability

UnUsUaL Limited - NRA Capital Research 2017-08-11: Powerful Mix Of High Growth And High Profitability UNUSUAL LIMITED SGX: 1D1

UnUsUaL Limited - Powerful Mix Of High Growth And High Profitability

Integrated business provides high operating flexibility.

  • UnUsUaL is a live event production and promotion company with the largest technical inventory in Singapore and a wealth of experience in various technical solutions, meaning that most production work is carried out internally. This is a very strong competitive advantage in Singapore as the financial breakeven for each show will be comparatively lower than that of a less integrated competitor.
  • In turn, UnUsUaL can work with both new and established artists in technically complex shows to draw both small and large crowds, while risking less capital and cultivating relationships with artists.

Established track record and lengthy relationships to top artists

  • Since its founding in 1997, UnUsUaL has produced the concerts of artists such as Jay Chou and JJ Lin. Due to its track record and relationships in the industry, UnUsUaL can reassure artists of payment of fees, production quality and venue quality and thus convince them to go on tours promoted by it.

Financial war chest to expand pipeline.

  • With net cash of S$17.1m, UnUsUaL is now able to monetise its industry networks by engaging more artists and for more shows – both in Singapore and regionally. Potential artists that UnUsUaL can target include JJ Lin.
  • Media reports indicate that JJ Lin will have a new concert tour in 2017. It will be a scoop for UnUsUaL if it can secure the regional concert rights to such an artist.

Tapping the China market.

  • If the Chinese attend concerts as frequently as the Americans, the China live music market would have worth US$5.7 billion instead of US$620m. Recorded music sales in China grew at 27.1% CAGR from 2012 to 2016. These days, top Asian artists tour 40 to 60 cities in China within one to two years. Securing the concert rights to a top artist will allow UnUsUaL to further tap this fast-growing market.
  • A new initiative is a partnership with another promoter to provide lighting solutions for them for a minimum of 100 concerts by various artists in China over three years.

High multiples justified by high growth.

  • UnUsUaL’s existing financials have yet to reflect the growth to be generated by its enlarged financial resources. We expect Unusual to grow its revenue at a CAGR of 37% over the next five years.
  • While UnUsUaL’s peers trade at lower multiples, they exhibit significantly slower growth rates. After adjusting for UnUsUaL’s higher growth, we obtained a valuation range of S$0.383 to S$1.017 (average of S$0.625), indicating upside of up to 114.0% versus downside of 19.4%.

Key risk.

  • In 2017, UnUsUaL suffered from two show cancellations which may slow its growth. Other risks include uncertainty of demand for each new show and limited overseas resources, etc.
  • Our view and valuation of Unusual is conditional upon the achievement of our forecasts. On balance, we refrain from providing a rating at this juncture.

Liu Jinshu NRA Capital Research | http://www.nracapital.com/ 2017-08-11
SGX Stock Analyst Report NOT RATED Maintain NOT RATED 0.625 Same 0.625