Cityneon Holdings - CGS-CIMB 2018-05-02: May The Odds Be Ever In Their Favour

CITYNEON HOLDINGS LIMITED SGX: 5HJ

Cityneon Holdings - May The Odds Be Ever In Their Favour

Secured a multi-year licensing deal with Lionsgate for “The Hunger Games” exhibit.
Acquisition of fourth blockbuster franchise and strategic partner underscores Cityneon’s design and operational capabilities.
Second Jurassic World temporary exhibit to strengthen its travelling set pipeline.
Maintain ADD.

Cityneon has announced an exclusive global licensing deal with Lions Gate Exhibition (Lionsgate) for “The Hunger Games: The Exhibition” (THG) over a seven-year period, making this its fourth intellectual property (IP).
This agreement includes the right-of- first-negotiation for CITN to
1. produce subsequent THG sets, and
2. exploit other IPs of Lionsgate for new exhibitions.
Examples are Twilight and Now You See Me.
Under the agreement, Cityneon will, in return, pay Lionsgate a fixed annual sum (which we believe could be covered with 1-2 locations per year), and a variable component.
We believe talks of potential THG prequels or spin-offs could rejuvenate the movie franchise, apart from Lionsgate’s plans to develop theme parks in Dubai (Motiongate Dubai opened in late 2016), China and South Korea.
The Hunger Games exhibition made its debut in New York in 2015, and has travelled to San Francisco, Sydney and more recently, Louisville, Kentucky in Jun 2017, with much success.
Management aims to secure a location for THG (possibly in Europe or Asia) by end-2018. With a scalable business model and expanded IP portfolio, we expect stronger and more sustainable earnings growth for the group in the medium term.

The existing Jurassic World (JW) exhibition has been well received since its opening in Paris on 14 Apr 2018, posting similar visitor trends as its previous three locations.
Together with sequels to be launched in 2018 and 2021, we expect Cityneon’s second Jurassic World set (target to be completed by 2H19) to come in handy for more touring agreements.

Recall that Cityneon also owns licensing rights to Marvel’s Avengers STATION, Hasbro’s Transformers – Autobots Alliance and Universal Studios’ Jurassic World.
Following a strong opening weekend for Avengers: Infinity War, which recorded box office sales of US$258m in North America and US$640m globally, we think Cityneon is poised to benefit from higher ticket and merchandise sales, as well as uptake of travelling sets.
A strong movie pipeline for the Marvel cinematic universe (such as the Captain Marvel and Avengers 4 movies) also underpins our earnings forecasts.

We retain our FY18-20F assumptions for now and maintain ADD on the stock, with an unchanged target price of S$1.58 (based on 14x CY19F P/E, in line with industry average). CityNeon will report its 1QFY18 results on 11 May.
Downside risks to our ADD call could stem from unexpected delays in the roll-out of travelling sets; key potential catalyst is further uptake of travelling sets.

NGOH Yi Sin CGS-CIMB | https://research.itradecimb.com/ 2018-05-02

SGX Stock Analyst Report ADD Maintain ADD 1.580 Same 1.580