Cityneon Holdings - CIMB Research 2018-03-14: Thriving On Multiple IPs

Cityneon Holdings - CIMB Research 2018-03-14: Thriving On Multiple IPs CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Thriving On Multiple IPs

  • Growing pipeline of travelling sets, with potential addition of fourth IP.
  • Likely to benefit from more events in even-numbered years, and theme park projects (Universal Studio Beijing, HK Disneyland expansion, Dubai 2020 World Expo).
  • We expect Cityneon’s strong upward earnings growth trajectory to continue over the next two years.
  • Maintain ADD with higher FY18-19F EPS forecasts; our Target Price is raised to S$1.58.

FY17 earnings beat from higher IP revenue and gross margins 

  • Cityneon reported strong FY17 net profit (+116% y-o-y), exceeding expectations at 114%/109% of our/Bloomberg consensus full-year forecasts. We attribute the outperformance to higher revenue from the Intellectual Property (IP) rights segment, as well as better-than-expected gross margin (FY17: 53.5%; FY16: 36.5%).

Globetrotting to continue in 2018 

  • In 2017, Cityneon’s temporary exhibits for both Avengers and Transformers travelled to Taipei, Beijing, Chongqing and Russia. In addition to certain longer-term contracts that will still be operational in FY18F, we forecast four new destinations, excluding the latest acquisition (Jurassic World, JW) which recently concluded its stop in Chicago. 
  • We understand that construction for the second JW set has started and should be ready for touring in 2019.

Rejuvenation in the works, upcoming movie releases 

  • We expect the upcoming movie releases to drive stronger uptake of travelling sets and visitors for Cityneon. 
  • According to news sources, four movies – Marvel’s Black Panther (in cinemas now), Avengers: Infinity War, Transformers: Bumblebee, The Movie and Jurassic World: Fallen Kingdom – will be launched in 2018. These, coupled with the upcoming addition of Black Panther to the Avengers STATION in Melbourne, could revive strong interest across all three franchises, in our view.

Riding on more theme parks and events 

  • While there was broad-based decline in revenue growth across all the sub-segments within its traditional business in FY17, we expect recovery in FY18F onwards as the company benefits from:
    1. more events in even-numbered years (e.g. Singapore Airshow, Food & Hotel Asia), and
    2. project tenders for theme park expansion plans in the region (Universal Studio Beijing, HK Disneyland, Jeju Lionsgate). 
  • Continued expansion of its “Design & Build” services also bodes well for Cityneon ahead of 2020 World Expo in Dubai.

Watchful of balance sheet strength; possibility of fourth IP 

  • We note Cityneon’s higher net gearing ratio of almost 1x at end-FY17, after taking on about S$76m additional borrowings to purchase JP Exhibition and Scorpio East Properties, as well as to build/upgrade travelling sets. 
  • Cityneon has also secured a US$60m credit facility with pledged shares, which would come in handy for any potential acquisition of IP rights, in our view.

Maintain ADD, with higher FY18-19F EPS 

  • We raise our FY18-19F EPS by 2-20% on the back of higher revenue assumptions for the IP business, resulting in a higher Target Price of S$1.58 (pegged to 14x FY19F P/E, in line with global industry average. 
  • Lapsing of the chain offer by the major shareholders (Massive Right and Mutual Power) removes stock overhang and we think Cityneon could re-rate in the coming year due to stronger earnings growth and potential acquisition of fourth IP. 
  • A downside risk is slower-than-expected uptake of sets.

NGOH Yi Sin CIMB Research | 2018-03-14
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.58 Up 1.40