Cityneon Holdings (CITN SP) - UOB Kay Hian 2018-03-01: 2017 Results Above Consensus Expectation; Orderbook Secure For 2018

CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings (CITN SP) - 2017 Results Above Consensus Expectation; Orderbook Secure For 2018

Cityneon reported its 2017 results which were slightly above our expectation. Net profit rose a stunning 162.9% y-o-y in 2017 to S$17.4m.
The group has secured a US$60m facility to fund the purchase of additional IP rights which might indicate a fourth IP on the horizon.
With a strong pipeline of movies from Hasbro, Marvel and Jurassic World, we expect sustained demand for the company’s exhibitions.

Cityneon Holdings (Cityneon) recorded a net profit of S$17.4m for 2017 which marks a 162.9% y-o-y increase, driven primarily by the high-margin intellectual property (IP) rights segment which saw sales rise 187.3% y-o-y in 2017 to S$50.7m.
Gross margins subsequently rose to an all-time high of 54.7% for 2017 reflecting the positive changes in sales mix as the travelling sets have toured more than 10 different cities. The gross margin for the IP rights business came in at 88.7% for 2017.

Cityneon has secured a massive US$60m credit facility with Triple Wise Asset Holdings which is an indirect wholly-owned subsidiary of China Construction Bank Corporation.
Lucrum 1, Cityneon’s major shareholder, has guaranteed the loan by issuing a security deed on 51% of the Cityneon shares which it owns.
Since Cityneon acquired the IP rights business back in 2015, the company has consistently faced the obstacle of a lack of funds to execute its growth plans quickly. With this credit line in place, the company is well-positioned to capitalise any new IP rights which may come by way of an acquisition or negotiations with brand owners.

Cityneon’s orderbook is secure for 2018 and they are currently working on securing the orderbook for 2019.
The Transformers Autobots Alliance Exhibition recently opened its doors in Chongqing, China in Dec 17. The group will open the fourth Avengers S.T.A.T.I.O.N. set for Norrkoping, Sweden in Jun 18.
The Jurassic World exhibition in Chicago has come to a close in Jan 18 with a visitorship of more than 1m attendees. The Jurassic World exhibition will move to another location soon and we expect the success to continue given the strong following of the brand.

According to publicnow.com, Landing International will partner with Cityneon to bring exhibitions to Jeju Shinhwa World.
Landing International is a Hong Kong listed company that engages in the development and operations of integrated resorts, entertainment facilities and property development. According to the article, Jeju Shinhwa World is the first premium integrated leisure and entertainment resort in Jeju, spanning 2.5m sqm.
Should there be truth to the reports and the partnership with Jeju materialise, this venture would be the first of its kind for Cityneon as it involves the installation of an exhibition within an integrated resort which would open up possibilities with other integrated resorts around the world.

Cityneon has announced that the MOU entered between Mutual Power International and Massive Right Investments has been terminated. This would imply that the overhang from a potential second general offer has been removed.

Maintain BUY with a PE-based target price of S$1.55 pegged to peers’ 15.4x 2018F PE. At current levels, the stock is trading at a bargain of 9.8x 2018F PE.

Additional intellectual property (IP) rights. If Cityneon is able to secure additional IP rights for other franchises such as Star Wars, we see further upside to our valuation.

Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2018-03-01

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.550 Same 1.550