mm2 Asia - Maybank Kim Eng 2018-08-17: Keeping The Faith

Mm2 Asia - Maybank Kim Eng Research 2018-08-17: Keeping The Faith MM2 ASIA LTD. SGX:1B0

mm2 Asia - Keeping The Faith

    In line with 2H19 ramp-up expectations

    • mm2’s 1QFY19 results may appear light at 18% of MKE/FactSet consensus profit estimates but both the core movie and event production business segments have seasonally weakest revenues during the June quarter. 
    • Meanwhile, we continue to expect the value creation efforts for the cinema business to be more a 2H19 event. 
    • We maintain our forecasts and 1x PEG based Target Price of SGD0.57. Maintain BUY. Any production delays or withdrawals are the key risks to our outlook.

    Reassurances given

    • We attended the post-results briefing where management highlighted:
      1. the movie production pipeline remains healthy at 35-40 projects with higher value North Asia continuing to grow;
      2. improving metrics for cinema will be more evident in six to nine months; and
      3. value realization efforts for post-production subsidiary Vividthree and cinema are on track.
    • Revenue and earnings momentum will build up in subsequent quarters.

    ~ ~ Where SG investors share

    Execution is key

    • Although the company is being offered a myriad of potential deals and alliances in the entertainment space, share-price performance in the short-to-medium term needs to be driven by execution of prior transactions. 
    • The initial investment, increased earnings visibility and now operational momentum of subsidiary UnUsUaL (SGX:1D1) are a prime example of what needs to happen for the cinema business.

    Key investment drivers intact

    • With management continuing to focus on gaining more high value movie and TV projects in North Asia and event production ramping up more family oriented shows globally, revenue and earnings momentum should continue to build throughout this year and onwards. 
    • Progress on these and margin enhancement measures at the cinema division are key to unlocking value in the entertainment conglomerate.

    Post-results briefing highlights


    • 1Q is always the weakest revenue quarter for the production business.
    • Pipeline for this year and FY20E remains strong for movie and event production businesses.
    • Even taking into account finance costs, the cinema business on a standalone basis was profitable during the quarter.
    • Increase in finance charges were primarily driven (40% of the quarter’s amount) by one-off fees related to loan facilities. These fees were non-tax deductible and hence the effective tax rate for the quarter was higher than normal.

    Business segment updates

    • The main cinema hosting segment is generally a stable revenue business but management is driving other segments such as advertising and confectionary. New marketing and payment platforms (e.g. Grab Pay) are being launched to improve the movie watching experience. With a new business model and mind set, time is needed for staff and systems to adjust. mm2 management expects more visible results in six to nine months.
    • Aside from hosting Disney on Ice shows in Korea in FY20E, UnUsUal will also expand the relationship into shows in China and Taiwan.
    • Previously disclosed event production and hosting for the Asia leg of Walking with Dinosaurs and the global tour of the commemoration of the Apollo moon landing are also FY20E events that will scale up long-term revenues with multi-year contracts.
    • Plans for unlisted online portal AsiaOne will materialize in 20E.

    Swing Factors 


    • A series of movie blockbusters whether in-house produced or distributed can produce positive surprises. 
    • More event production or co-production deals for UnUsUal for Disney shows and/or other big names in content can help it build scale faster. 
    • Successful listing of various components could unlock value. 


    • Worsening of content piracy, which would affect film, TV and cinema demand. 
    • Any issues in paying for remaining SGD215m for its Cathay acquisition. 
    • Unfavourable regulations in regional markets for its film expansion. 

    Luis Hilado Maybank Kim Eng Research | 2018-08-17
    SGX Stock Analyst Report BUY Maintain BUY 0.570 Same 0.570