Spackman Entertainment - RHB Invest 2017-11-16: Positives Ahead For Korean Entertainment

Spackman Entertainment - RHB Invest 2017-11-16: Positives Ahead For Korean Entertainment SPACKMAN ENTERTAINMENT GRP LTD 40E.SI

Spackman Entertainment - Positives Ahead For Korean Entertainment

  • Spackman booked a SGD0.77m loss in 3Q17, in line with our estimate, as there were and would be no movie launches after Master in 2017. Nonetheless, it will launch two new movies in 2018, with a sturdy budget of around USD9m per feature. 
  • We expect it to acquire more related businesses that would add to its recurring income, moving forward. Also, China lifting its ban on Korean entertainment in early November could be very beneficial for the company and its talent management agency associate. 
  • As such, we maintain BUY and a TP of SGD.0.20 (79% upside).

China reopens the door to Korean entertainment. 

  • This is after more than a year of a perceived “ban” on Hallyu (ie the Korean wave) in place, which was due to the dispute over the deployment of the US Terminal High Altitude Area Defense (THAAD) missile defense system in South Korea. 
  • There are noticeable signs that China has likely lifted the ban, as Korean artists are starting to re-appear on TV screens in China once more. The lifting of the ban is likely a result of an agreement between China and South Korea to normalise their relationship after the THAAD issue. 
  • We think that this would be a major positive for Spackman Entertainment Group (Spackman) as it would enable partnerships between China and Korean media companies again – especially when it comes to movies. 
  • China companies can also resume their acquisition sprees, targeting Korean content producers. This would make Spackman a potentially attractive M&A target for Chinese firms.

3 new movies in 2018. 

  • Golden Slumber, a remake of the 2010 Japanese film with the same name, is based on an Isaka Kotaro novel and will star A-list Korean artists Mr Kang Dong-Won and Ms Han Hyo-joo. It is slated to be launched in Feb 2018. 
  • Meanwhile, Sovereign Default, is a historical financial thriller depicting the behind‐the‐scenes story of the tumultuous week leading up to the rescue package agreed upon between the International Monetary Fund (IMF) and South Korea to prevent bankruptcy. Filming is scheduled to begin in end-2017 or early 2018, with the release slated for 2H18. 
  • Meanwhile, Studio Take, a wholly-owned indirect subsidiary founded by veteran movie producer, Mr. Song Dae-chan, has commenced the filming of a new Korean human drama feature with the working title, Damaged. Filming is scheduled to end in mid-December, and the movie is slated to be released by 2H18 (subject to changes in final filming schedule).

Maintain BUY, with an unchanged DCF-derived TP of SGD0.20. 

  • We believe that Spackman’s management may acquire more companies in an effort to reshape its business model and diversify its revenue stream, as well as secure more recurring revenue. 
  • Spackman Entertainment's share price has fallen quite sharply and is now at an attractive level. This, coupled with the lifting of the ban on Korean media in China, as well as the greater capacity to produce more movies and a strong pipeline of new movies to be launched in 2018, underpins our positive view on its outlook. 
  • Our unchanged DCF-backed TP of SGD0.20 also implies a 15x FY18F P/E. 
  • A downside risk to our call is a poor reception to its movies

Jarick Seet RHB Invest | 2017-11-16
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.200 Same 0.200