mm2 Asia - CIMB Research 2017-11-03: Home Run, Finally

Mm2 Asia - CIMB Research 2017-11-03: Home Run, Finally MM2 ASIA LTD. 1B0.SI

Mm2 Asia - Home Run, Finally

  • The proposed 100% stake acquisition in Cathay Cineplexes gives mm2 a strong foothold in Singapore and enhanced bargaining power with suppliers.
  • S$230m purchase consideration implies 13.8x EV/EBITDA, pricey relative to previous deals, but in exchange for rare SG assets, full ownership and an established brand.
  • 1HFY3/18 PATMI (+65% yoy) was in line at 45% of our FY18F estimate; synergistic M&As as key potential catalysts.
  • UnUsUaL Limited also gains traction with North Asia and new product line for “Disney On Ice”.
  • Our SOP-based TP is now higher on EPS upgrades and as we roll over to CY19F.

Fourth cinema acquisition, first in Singapore 

  • mm2 proposed to acquire 100% of Cathay Cineplexes (“Cathay”) for S$230m, expected to be completed by end Nov-17. 
  • As the 2nd largest cinema exhibitor in Singapore with 27% market share (in terms of box office receipts), Cathay currently operates 64 screens and 11,569 seats across eight locations in Singapore, including its flagship cinema at Cineleisure Orchard and the newly-opened Parkway Parade theatre. This marks mm2’s 4th cinema purchase but the 1st outside Malaysia, after the aborted GV Singapore deal.

Cathay offers rare SG assets, 100% stake and household brand 

  • The S$230m purchase consideration implies 13.8x adjusted FY16 EBITDA of S$16.7m, which is higher than the 10.5x EBITDA previously offered for GV Singapore and 9.8x paid for 13 Lotus Fivestar cinemas. We think this includes a premium for full ownership (vs.
  • 50% of GV Singapore) and substantial goodwill for the Cathay brand (estimated S$24mS$30m), in exchange for exposure to the local cinema exhibition scene. This also allows mm2 to enlarge its regional presence and elevate its bargaining power with suppliers.

UnUsUaL: expanding product offering and building scale 

  • We also saw improved earnings from UnUsUaL Limited (Not rated), a 41.9%-owned subsidiary of mm2. Excluding a one-off gain in 1HFY3/17, its 1HFY18 core net profit grew by 65% yoy on the back of higher revenue (+79%) but lower margins. 
  • We remain positive on its pipeline of concerts and events, as UnUsUaL penetrates North Asia and adds a new product line with the upcoming collaboration to present 48 “Disney On Ice” shows in Korea and Taiwan.

1HFY18 results within expectations; more catalysts ahead 

  • mm2 continued to exhibit strong earnings growth in its 1HFY18 results, with topline and core PATMI up 60% and 55% yoy, respectively, largely led by UnUsUaL Limited’s 6-month contribution (vs. 2-month in 1HFY17). 
  • We see future opportunities for the company not only in core production extending to other forms of content (such as original web series and short form content) and more regional distribution platforms to capture higher advertising dollar, but also in synergistic M&As.

Raise FY18-20F EPS by 5.5-16.4% and TP to S$0.76 

  • We assume a 65% debt financing structure for the Cathay deal (at 3.5% interest), as mm2 still has c.S$37.3m remaining proceeds from its IPO and share placements, which will possibly raise its net gearing to 85% by end-FY19F. 
  • Our FY18-20F EPS also rises by 5.5-16.4%, after adjusting for earnings contribution from Cathay and higher financing charges. 
  • Maintain Add with a higher SOP-based TP as we roll over to CY19F. 
  • Downside risks are unexpected production delays or cost overruns, and poor M&A execution.

NGOH Yi Sin CIMB Research | 2017-11-03
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.76 Up 0.580