Cityneon Holdings - CGS-CIMB Research 2018-10-30: Take This Second Chance

CITYNEON HOLDINGS LIMITED (SGX:5HJ)

Cityneon Holdings - Take This Second Chance

Mandatory unconditional cash offer for Cityneon launched at S$1.30/shr.
Offer price is above our Target Price and implies a 19.2% premium over the VWAP of the shares for the 12-month period up to and including the last trading date.
We think the offer price is fair and minority shareholders should take it up.

Post its trading halt, Cityneon announced that West Knighton Limited (“the offeror”), a special purpose vehicle (SPV) indirectly owned by Mr Johnson Ko Chun Shun and CEO Mr Ron Tan, has purchased an approximately 68.95% stake in the group from Lucrum 1 Investment Limited at S$1.30/shr.

The SPV is required to launch a mandatory unconditional cash offer to the minority shareholders at an offer price of S$1.30/shr in cash.
The offeror does not intend to increase the offer price but plans to delist and privatise the company.

We think the offer price is fair as it is above our Target Price of S$1.16 (based on 11x FY19F P/E, a 30% discount to the global industry average) and at a premium of approximately 6.8%, 11.9%, 15.7% and 19.2% over the volume-weighted average price (VWAP) of the shares for the 1-month, 3-month, 6-month, and 12-month periods, respectively, up to and including the last trading date.
This offer is also higher than the S$0.90/shr that Lucrum 1 Investment Limited previously paid for Star Media’s 52.5% stake in 2017.
While we continue to like the stock for its robust portfolio of licensing rights (comprising Avengers Station, Transformers, Jurassic World and The Hunger Games), we think near-term earnings growth could be more muted from higher opex and capex required for the construction of new sets.
Recall that 1H18 net profit of S$13.0m (+68.2% y-o-y), which accounted for 56%/55% of our/consensus FY18F forecasts, was largely boosted by tax income of S$3.5m and 11.4% topline growth.
We believe minority shareholders should take up the offer given that
1. there is less earnings visibility on its pipeline of travelling sets from FY19F onwards, and
2. concerns on high net gearing (1.5x as of end-Jun 18) and receivables (S$54.2m as of end-Jun 18) remain.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-30

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