Cityneon Holdings - DBS Research 2018-08-06: Improving Earnings Visibility 

Cityneon Holdings - DBS Group Research Research 2018-08-06: Improving Earnings Visibility  CITYNEON HOLDINGS LIMITED SGX:5HJ

Cityneon Holdings - Improving Earnings Visibility 

  • Cityneon launched 3-year exhibition for Transformers in Jeju Island, Korea.
  • Longer term contract provides earnings visibility; not stopping at four IPs.
  • Cut in number of exhibition sets; earnings forecast reduced by 11-15%.
  • Maintain BUY; Target Price tweaked lower to S$1.57.



Longer term contract provides earnings visibility.

  • The launch of the 3-year exhibition for the second set of Transformers in Korea, after a 2-year contract for the first set in China indicates that a longer term contract is likely to be the trend going forward. This model enables Cityneon to lock in revenue (in terms of licensing fee) for a longer period and provides earnings visibility for the group.
  • We continue to expect Cityneon to deliver explosive FY17-19F EPS CAGR growth of 131% based on the current four IPs - Avengers, Transformers, Jurassic World and The Hunger Games - and its Traditional business. 



~ SGinvestors.io ~ Where SG investors share

Where we differ: Assuming more travelling sets.

  • We assume eight exhibition sets in total for FY18F (four for Avengers, two for Transformers, one each for Jurassic World and The Hunger Games) and nine for FY19F (four 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 catalysts:

  • M&A, acquiring more IPs, expanding project pipeline, focus on higher-margin projects for the traditional business. 


Valuation: 


Cut in number of exhibition sets; earnings forecast reduced by 11-15%. 

  • We have reduced our assumption of the number of exhibition sets to eight for FY18F and nine for FY19F, down from ten each previously.
  • Our earnings forecast for FY18F is thus cut by 15% and 11% for FY19F. Target price is now S$1.57 (prev: S$1.60), still based on PE valuation peg of 14.4x, which is at a 20% discount to peers’ average PE of 18x but shifted to blended FY18F and FY19F earnings instead of FY18F.
  • Maintain BUY.


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. 


WHAT’S NEW - Transformers in Korea; cut in number of exhibition sets


Transformers in Jeju Island, Korea:

  • Cityneon launched its Transformers exhibition in Jeju Island, Korea last Friday, 3 August 2018, in conjunction with the opening of the outdoor entertainment area “Shinhwa Waterpark” at the Jeju Shinhwa World casino resort. This will be Cityneon’s second launch, following the first set in Chongqing, China at the end of last year. The set will be in Jeju for three years, unlike most of the past contracts that Cityneon has signed with local operators that lasted only for a few months.


OUTLOOK


Longer term contract provides earnings visibility.

  • The longer-term contract, like the existing one in Jeju Island and the 2- year contract in Chongqing for the first Transformer set, is likely to be the trend going forward. This model enables Cityneon to lock in revenue (in terms of licensing fees) and provides earnings visibility for the group.

Focusing on Jurassic World, expect more sets to come.

  • Cityneon is focusing on Jurassic World as the visitorship is generally better than the other three IPs. Going forward, we can expect the number of exhibition sets for Jurassic World to increase from the current two sets (one working set and the other in the process of being built).

Not stopping at four IPs.

  • Cityneon has already secured four IPs in five years - The Avengers from Marvel in 2013, Transformers from HASBRO in 2015, Jurassic World in 2017 and The Hunger Games in 2018. We expect the group to leverage on its credentials and experience and continues to explore other IPs.


EARNINGS & RECOMMENDATION


Cut in number of exhibition sets. 

  • For Avengers, Cityneon is likely to keep it at four sets for now. Thus, we have reduced our assumption of the number of exhibition sets to four from five. We have also shifted the launch of the second set for Jurassic World to 2019. We are now assuming a total of eight sets – (four for Avengers, two for Transformers, one each for Jurassic World and The Hunger Games), vs ten previously for FY18F. For FY19F, we are assuming a total of nine sets (four for Avengers, two each for Transformers and Jurassic World and one for The Hunger Games), down from ten sets.

FY18F and FY19F earnings cut by 11-15%.

  • With the reduction in the number of exhibition sets, we have revised down our earnings forecasts for FY18F by 15% and 11% for FY19F. We have also reduced our numbers for the traditional business.
  • The earnings cut is partly offset by a higher assumed licensing fee for Jurassic World. Our target price is now S$1.57 (prev S$1.60), still based on PE valuation peg of 14.4x, which is at a 20% discount to peers’ average PE of 18x but shifted to blended FY18F and FY19F earnings instead of FY18F.
  • Maintain BUY.





Lee Keng LING DBS Group Research Research | https://www.dbsvickers.com/ 2018-08-06
SGX Stock Analyst Report BUY Maintain BUY 1.57 Down 1.600



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