Spackman Entertainment - RHB Invest 2018-05-16: Still Upbeat On A 2H18F Turnaround

Spackman Entertainment - RHB Invest 2018-05-16: Still Upbeat On A 2h18f Turnaround SPACKMAN ENTERTAINMENT GRP LTD SGX: 40E

Spackman Entertainment - Still Upbeat On A 2H18F Turnaround

  • Maintain BUY, while we cut our Target Price to SGD0.10 (from SGD0.20) to imply a FY18F P/E of 14x.
  • Spackman Entertainment’s disappointing 1Q18 was mainly due to the absence of profits recognised from its blockbuster movie, Master, and the underperformance of Golden Slumber – as a result of the latter, we slash FY18F PATMI by 33%.
  • However, with yield-accretive acquisitions done in 2017 boosting the company’s recurring income – while another potential hit, Sovereign Default is set to hit the big screen in 2H18 – we keep our positive outlook, premised on a future comeback.



Profits tanked due to the absence of blockbusters.

  • Spackman Entertainment Group (Spackman) reported a disappointing 1Q18, mainly because of the absence of profits recognised from its blockbuster movie, Master, and the underperformance of Golden Slumber.
  • However, revenue grew 31% y-o-y to USD10.5m, partially due to the contribution of USD2.5m from the acquisitions that the company has made so far, as well as USD4.5m from the post-theatrical distribution of The Outlaws.


Acquisitions were made to build a base of recurring income.

  • Previously, close to 100% of Spackman's revenue was from producing films. Revenue from popular movies would lead to a positive swing in its P&L, just like what happened in FY15 and FY16. However, it also made a number of acquisitions in January as well as in 2017, that are yield-accretive and would likely contribute positively to its P&L. This should build its base of recurring PATMI, which we estimate at USD1.5-2m pa.
  • We expect management to continue adding more recurring complementary revenue streams in the future, in order to reduce its reliance on the more unpredictable movie-making business.


Sovereign Default to be launched in 2H18.

  • This Spackman-produced movie on the Korean financial crisis stars top Korean actors Yoo Ah-in, who is managed by Spackman Media Group, and Kim Hye-soo. The film, which will be distributed by CJ Entertainment, is scheduled to begin screening in Korean cinemas in 2H18. The movie’s estimated total production budget (including prints and advertising costs) is tentatively set at approximately USD8.6m.
  • It could also boost Spackman’s earnings, if ticket sales are healthy. For now, we have a conservative 4.5m ticket sales estimate for the movie, which would yield a net profit of USD2.5m for the company.


Maintain BUY, with a lower DCF-backed Target Price of SGD0.10.

  • We slash its FY18F PATMI by 33% to reflect the underperformance of Golden Slumber. However, with the yield-accretive acquisitions done in 2017 boosting its recurring income, while Sovereign Default is anticipated to hit the screens in 2H18, we remain positive on Spackman’s outlook – based on an anticipated recovery in its financial performance.
  • The key risk to our call is the volatility in profitability, as Spackman’s performance depends on the audience’s reception to its movies





Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-16
SGX Stock Analyst Report BUY Maintain BUY 0.10 Down 0.20



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