Cityneon Holdings (CITN SP) - UOB Kay Hian 2018-05-15: 1Q18 Results In Line With Expectations; Seasonally Weak First Quarter

CITYNEON HOLDINGS LIMITED SGX: 5HJ

Cityneon Holdings (CITN SP) - 1q18: Results In Line With Expectations; Seasonally Weak First Quarter

Cityneon’s 1Q18 results were in line with expectations. Net profit rose 80.4% y-o-y to S$4.0m, driven by higher sales from the intellectual property rights segment and an uptick in gross margins from a positive sales mix.
The group guides for 9-10 completed sets by end-18 and the orderbook for 2019 should likely be filled soon, given the strong indication of interest from different partners in different cities.
Maintain BUY and PE-based target price of S$1.55.

1Q18 results in line with our expectations. Cityneon Holdings (Cityneon) recorded a net profit of S$4.0m for 1Q18, up 80.4% y-o-y (1Q17: S$2.2m). The rise in net profit was driven almost exclusively through higher sales from the intellectual property rights (IPR) segment and a better sales mix as the higher-margin IPR segment accounted for 62% of total sales in 1Q18 (1Q17: 44%). Revenue grew 38.4% y-o-y to S$23.5m due to the increased number of sets. Cityneon currently has a total of seven sets.
Seasonally weak first quarter. The first half of the year is typically a weaker period for the company due to the lack of earnings from the traditional business. We expect a seasonal ramp-up in 2H18 as more events happen in the second half of the year. In 2017, 1Q17 net profit accounted for only 12.6% of full-year earnings. 1Q18 net profit accounted for 16% of our full-year estimate.
Balance sheet. Borrowings have risen quite significantly as the company gears up for expansion. The company had net debt of S$95m as of 1Q18 but given the large US$60m credit facility available to the company, sourcing additional funds for expansion should not be an issue. Receivables remained fairly high as we estimate that 70% of receivables come from the traditional business as the group is engaged in certain large projects. The group guides for 9-10 completed sets by end-18, likely with an additional Jurassic World set and an additional Transformers set.

Orderbook for 2019. We understand that management is working on filling the orderbook for 2019 and they have been receiving many indications of interest from different vendors in different cities. We are confident that the orderbook for 2019 is likely to be filled in the second half of 2018.
Possible change in business model for Jurassic World. Cityneon is exploring possible changes to its business model, especially for the Jurassic World Exhibition. Given that the Jurassic World Exhibition attracted in excess of 1m visitors for 2017 and is the most successful in terms of visitorship among Cityneon’s intellectual properties, it would make sense for them to take on more risk. Management is exploring a potential change from the licence fee and royalty model for the Jurassic World Exhibition going forward.

Maintain BUY and PE-based target price of S$1.55, pegged to peers’ average of 15.4x FY18F PE. At current levels, the stock is trading at a bargain 10.5x 2018F PE.

Additional 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 | https://research.uobkayhian.com/ 2018-05-15

SGX Stock Analyst Report BUY Maintain BUY 1.550 Same 1.550