Cityneon Holdings - CIMB Research 2017-09-01: Enters New Growth Phase With New IP

Cityneon Holdings - CIMB Research 2017-09-01: Enters New Growth Phase With New IP CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Enters New Growth Phase With New IP

  • We are more upbeat on CITN’s broader portfolio of IP rights and FY17-19F earnings prospects, post our meeting with the management.
  • Robust historical number of visitors makes Jurassic World not just a blockbuster movie but also a blockbuster exhibition, relative to CITN’s existing Avengers set.
  • JP Exhibition’s FY16 profit was c.S$3.8m below the profit guarantee, due to single set contribution and lower average ticket pricing.
  • Apart from a stronger pipeline of travelling sets, CITN continues to pursue more theme parks and interior fit-out projects for its ex-VHE business.
  • Raise FY17-19F EPS by 0.1-9.8%, and target price to S$1.40. Maintain ADD.

Raise FY17-19F EPS, and Target Price to S$1.40 

  • CITN recently said it plans to acquire 100% of JP Exhibition, which holds the global rights to Jurassic World: the Exhibition. We met with the management post the announcement to gain better clarity on
    1. the new intellectual property (IP) and partnership with Universal Studios,
    2. its updated pipeline of travelling sets, and
    3. financing plans for the US$25m purchase. 
  • We turn more positive and raise our FY17-19F EPS by 0.1-9.8%, which raises our Target Price to S$1.40 (still based on 15x CY18 P/E, at 15% discount to peers’ average).

Jurassic World, a blockbuster exhibition 

  • The Jurassic World travelling set attracted a combined 850k visitors at both the Melbourne museum and Franklin Institute in Philadelphia, making it a blockbuster exhibition relative to CITN’s existing Avengers set in Las Vegas. 
  • With 210k visitors YTD at Chicago’s Field Museum (May 17-Jan 18), we think this could surpass earlier numbers.  Given such a strong franchise and track record, its purchase price of 5x 12M forward P/E is attractive, vs. the 7.5x P/E multiple that CITN paid for VHE.

Explaining the shortfall in JP Exhibition’s FY16 profit 

  • We note that JP Exhibition recorded FY12/16 net profit of S$3m, a far cry from the 12M profit guarantee of US$5m (c.S$6.8m). We attribute the shortfall to:
    1. single set contribution in FY16 (Melbourne, Mar-Oct 16), vs. the revenue inclusion of two engagements in 2017 (Philadelphia and Chicago); as well as
    2. the lower average ticket pricing (ATP) of US$25 for Melbourne, vs. US$35 in the two US cities.

Plans to more aggressively expand reach of Jurassic World 

  • JP Exhibition currently has one temporary set of Jurassic World: the Exhibition, which will travel to two other US cities in 2018 after a stopover in Chicago. With a new supportive partner, Universal Studios, CITN has plans to commence construction of the 2nd travelling set to meet increasing demand from Europe and Asia. 
  • We think the company is now in a stronger position, backed by a broader portfolio of licensing rights and strategic partners.

FY17-19F assumption changes 

  • We update our model to now include:
    1. higher revenue contribution from the recently acquired Jurassic World exhibit,
    2. additional financing charges (US$25m to be funded by 50/50 cash and borrowings), and
    3. higher capex from new travelling sets. 
  • Each Jurassic World temporary exhibit costs more (estimated S$5m-6m per set) than the Avengers’ set (c.S$4m) to reproduce due to the intricacy of dinosaur replicas. 
  • We also factor in a stronger order book for ex-VHE business as it pursues more theme park projects, etc.

Keys risks and catalysts 

  • We expect further uptake of travelling sets to catalyse the stock. 
  • Downside risks are poor execution of its first Transformers set, and delays in the roll-out of travelling sets.

NGOH Yi Sin CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-09-01
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.40 Up 1.270