Cityneon Holdings - DBS Research 2018-05-03: Hunger For Growth

CITYNEON HOLDINGS LIMITED SGX: 5HJ

Cityneon Holdings - Hunger For Growth

Acquiring fourth IP - The Hunger Games; rights to acquire other IPs owned by Lionsgate.
Building second Jurassic World - The Exhibition Set.
Raised FY18-19F earnings by 11% to 13% to account for the 4th IP.
Maintain BUY, Target Price raised to S$1.60.

The acquisition of The Hunger Games – The Exhibition Intellectual Property rights (IP) comes with the right to acquire other IPs owned by Lionsgate. With this latest deal, Cityneon is now on a stronger and firmer growth path.

Together with the three existing IPs – Avengers, Transformers and Jurassic World - plus its traditional business, we continue to expect Cityneon to deliver explosive FY16-19F EPS CAGR growth of 172%.
Trading at a low PE-to-growth ratio of just 0.2x FY18F earnings, Cityneon is attractive to investors seeking unique ideas in the entertainment industry.

We assume 10 exhibition sets in total for FY18F and FY19F (five for Avengers, two each for Transformers and Jurassic World and one for The Hunger Games), vs consensus of seven to eight sets for FY18F and FY19F.
Potential catalyst: M&A, acquiring more IPs, expanding project pipeline, focus on higher-margin projects for the traditional business.

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.

Cityneon has inked a deal with global content leader Lionsgate to acquire the licensing rights to The Hunger Games: The Exhibition (THG Exhibition). This marks the fourth blockbuster brand IP for Cityneon, and came just slightly over six months after acquiring its third IP, Jurassic World – The Exhibition, in September last year.
In operation for about four years, toured four cities. This latest seven-year agreement, renewable for another seven years, allows Cityneon to expand the global territory of the attraction, which has successfully toured New York, San Francisco, Sydney, and Louisville. The agreement also provides Cityneon with a first right to produce future traveling exhibits for the studio.
Rights to acquire the existing exhibition set and other IPs owned by Lionsgate. Cityneon has a right of first negotiation to purchase the existing travelling set in the event that Lionsgate wishes to sell, and to acquire other intellectual property of Lionsgate for new exhibitions comparable in scope to the THG Exhibition. Lionsgate holds other franchises including “Twilight” and “Now you see me”.

Lionsgate owns the rights to the THG Exhibition. Lionsgate belongs to the Lions Gate Entertainment Inc. Group (listed on the New York Stock Exchange) which makes and distributes films, television shows and other entertainment content globally.

The Hunger Games first originated from a book published in September 2008. In the novel, the Hunger Games is an annual televised event where the ruthless Capitol randomly selects one boy and one girl, each between the ages of 12 and 18 from each of the twelve districts, pitting them against each other in a game of survival where they are forced to fight one another to death.
The immersive themed environments, high-tech and hands-on interactives of THG Exhibition has gained much popularity.

Cityneon has entered into an agreement with Universal to build the second Jurassic World - The Exhibition set.
Since its launch in 2016, Jurassic World: The Exhibition has toured Melbourne, Australia, Philadelphia and Chicago, USA and is currently in Paris, France since 14 April 2018 and is expected to stay till 2 September 2018.

We have raised FY18F and FY19F earnings by 11% and 13% respectively to account for the fourth IP. We have already factored in the contribution for the second Jurassic World - The Exhibition set.
Overall, our forecast is based on 10 exhibition sets in total for FY18F and FY19F (five for Avengers, two each for Transformers and Jurassic World and one for The Hunger Games).
Our target price is raised to S$1.60 (up from S$1.45), still based on PE valuation peg of 14.4x, which is at a 20% discount to peers’ average PE of 18x on FY18F earnings.
Maintain BUY.

Lee Keng LING DBS Vickers | https://www.dbsvickers.com/ 2018-05-03

SGX Stock Analyst Report BUY Maintain BUY 1.60 Up 1.450