Cityneon Holdings - DBS Research 2018-02-28: Marvelous Transformation; FY17 a record-high year

Cityneon Holdings - DBS Vickers 2018-02-28: Marvelous Transformation CITYNEON HOLDINGS LIMITED 5HJ.SI

Cityneon Holdings - Marvelous Transformation

  • Significant surge in FY17 revenue and net profit, partly due to acquisition of Jurassic World.
  • Moving up the value chain for the traditional business.
  • Explore M&A opportunities; a fourth IP.
  • Maintain BUY; Target Price S$1.45.



FY17 a transformation year. 

  • With the acquisition of Jurassic World in August last year, Cityneon is now on a stronger and firmer growth path. Together with the two existing Intellectual Property rights (IPs) – Avengers and Transformers and the traditional business, Cityneon reported record high revenue that broke the S$100m mark and 163% jump in net profit to S$17.4m. 
  • We continue to expect Cityneon to deliver explosive FY16-19F EPS CAGR growth of 165%. Trading at a low PE-to-growth ratio of 0.2x FY18F earnings, Cityneon is attractive to investors seeking unique ideas in the entertainment industry.


Where We Differ:


Assuming more travelling sets. 

  • Including the new Jurassic World, we now assume six exhibition sets for FY17F (four for Avengers, one each for Transformers and Jurassic World) and nine sets for FY18F and FY19F (five for Avengers, two each for Transformers and Jurassic World), vs consensus of five sets for FY17F and seven sets for FY18F.


Potential catalyst: 

  • M&A, a fourth IP, expanding project pipeline, focus on higher-margin projects for the traditional business.


Key Risks to Our View

  • VHE’s limited track record. Victory Hill Exhibitions (VHE) was formed in 2012 and its first exhibition was held in New York in 2014.
  • Earnings dependent on number of visitors, especially for the permanent set in Las Vegas.


RESULTS HIGHLIGHTS 


Significant surge in FY17 revenue and net profit: 

  • Cityneon Holdings; FY17 revenue broke the S$100m mark, rising 20.7% y-o-y to S$116.7m, in line with our forecast. Net profit jumped 162.9% to S$17.4m, 6% above our estimates. Part of the growth is due to the contribution from the newly acquired third intellectual property rights (IPR), Jurassic World - The Exhibition in August 2017. 
  • Together with the other two IPRs (Disney’s Marvel’s Avengers S.T.A.T.I.O.N. and Hasbro’s Transformers), Cityneon had a total of six exhibition sets in 2017.

IPR accounts for 70.5% of total gross profit. 

  • Revenue for the IPR surged 187%, mainly derived from contracts entered during the year including the opening of Marvel's Avengers S.T.A.T.I.O.N. Exhibitions in Taipei, Beijing and Russia as well as the opening of Transformers Exhibition in Chongqing, China. 
  • The IPR segment accounts for 43.5% of the total revenue for the group but 70.5% of gross profit, due to its high margin of 88.7%. Hence an improvement was seen in the aggregate gross profit margins from 36.0% in FY16 to 53.5% in FY17.

Timely release of sequel movies from the franchises in 2018.

  • There are several movies from the franchises on which Cityneon has based its exhibits, set to be released in 2018. There are three Marvel movies planned, and one each from the Transformers and Jurassic World franchise. The timing of these movie releases augurs well for the group’s IPR business.

Moving up the value chain for the traditional business.

  • Cityneon will continue to expand its full suite of “Design & Build” services, especially for the upcoming 2020 World Expo in Dubai, to continue its success in the previous World Expos in Shanghai and Milan.


OUTLOOK 


Exploring M&A opportunities; a fourth IP. 

  • Cityneon has put in place its financing needs and will continue to explore new business development opportunities including M&A activities. It will continue to align its traditional core business with that of the IPR business, especially in the area of creative and design.
  • For the IPR segment, besides investing in new exhibition travelling sets for its three existing IPs, Cityneon is also seeking to secure a fourth IP to take the group to greater heights.


EARNINGS & RECOMMENDATION 


Maintain BUY; Target Price S$1.45. 

  • No changes to our earnings forecasts based on nine exhibition sets in total for FY18F and FY19F (five for Avengers, two each for Transformers and Jurassic World). 
  • We have assumed the construction of an additional Jurassic World travelling set in FY18F. 
  • Our target price of S$1.45 is based on PE valuation peg of 14.4x, which is at a 20% discount to peers’ average PE of 18x on FY18F earnings.




Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2018-02-28
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.450 Same 1.450



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