mm2 Asia - CGS-CIMB Research 2019-11-18: 2QFY20 Still On Track

MM2 ASIA LTD. (SGX:1B0)

mm2 Asia - 2QFY20 Still On Track

mm2 Asia's 1HFY3/20 PATMI deemed in line as we expect a stronger 2H; profit decline attributable to higher costs, core production delay and box office seasonality.
Net gearing and core trade/other receivables were unchanged q-o-q in 2Q20.
Maintain ADD; re-rating to come from value unlocking and faster cinema turnaround.

mm2 Asia (SGX:1B0) reported 2QFY20F core PATMI of S$2.2m, which fell 40.4% y-o-y and 68.0% q-o-q due to higher depreciation and amortisation expenses. See mm2 Announcements.
1H20 PATMI of S$9.1m (-16.1% y-o-y) formed 44%/47% of our/consensus full-year forecasts, which we deem in line as 2H is seasonally stronger.
The concert (UnUsUaL (SGX:1D1)) and post-production (Vividthree (SGX:OMK)) segments outperformed; revenue for the core production and cinema business dipped q-o-q and y-o-y due to delays in some productions, as well as box office seasonality. We believe a stronger project rollout and sustained cinema profitability could underpin a 2H recovery for mm2 Asia.
mm2 Asia (SGX:1B0); ; MM2 Analyst Reports; MM2 Dividend History; ; MM2 Latest News;

Trade and other receivables remained high at S$184.1m this quarter (1Q20: S$173.4m, 2Q19: S$138.5m), driven by UnUsUaL’s S$20.1m increase from higher promotion and production revenue, as well as a S$18.4m reclassification from intangibles.
Excluding the consolidation from UnUsUaL and Vividthree, receivables attributable to mm2 Asia’s core and cinema operations would have been stable q-o-q at c.S$122m.
Net gearing inched up slightly to 0.87x as of end-2Q20 (1Q20: 0.85x, 2Q19: 0.63x), while the group generated lower operating cashflow of S$1.3m in 2Q20, vs. S$2.7m in 2Q19.

UnUsUaL (SGX:1D1) recorded strong 2Q20 net profit of S$5.0m (+54.8% y-o-y, +369.4% q-o-q). Topline rose 57.5% y-o-y to S$29.6m, thanks to more promotions (e.g. Disney) and production (F1, concerts, etc.) activities. See UnUsUaL Announcements.
The group continues to focus on higher margin shows per artiste in multiple territories and expansion of family entertainment projects with Disney. The 2H pipeline remains strong, including Apollo 11 at its second location in Houston, Texas in Dec 2019.
See also UnUsUaL Share Price; UnUsUaL Target Price.

Vividthree (SGX:OMK) grew its revenue from S$0.7m to S$1.8m in 2Q20, which boosted its turnaround from S$0.3m net loss in 2Q19 to S$0.2m net profit. See Vividthree Announcements.
Apart from the recent launch of “Train to Busan” set in Genting Malaysia, the group is also working on the Doraemon Experience show, webcomics videos and a mixed tourism development project, “HeurekaLand”.
See also Vividthree Share Price; Vividthree Target Price.

No change to our FY20-22F EPS and ADD call on the stock with an unchanged SOP-based Target Price of S$0.32. See mm2 Share Price; mm2 Target Price.
Potential Catalysts: successive box office hits, faster cinema turnaround and value unlocking.
Unexpected production delays and balance sheet mismanagement could pose downside risks.

NGOH Yi Sin CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-18

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