UnUsUaL Entertainment - UOB Kay Hian 2019-11-20: Rare Gem With Unusual Growth

UNUSUAL LIMITED (SGX:1D1) | SGinvestors.io UNUSUAL LIMITED (SGX:1D1)

UnUsUaL Entertainment - Rare Gem With Unusual Growth

  • Boasting a wonderful track record, UnUsUaL (SGX:1D1) has organised many sold-out concerts for popular artistes such as JJ Lin and Andy Lau, creating strong working relationships along the way. UnUsUaL is expected to continue its strong EPS growth for the next two years, based on its strong orderbook.
  • Strengthening its foothold in family entertainment, we believe this new segment would boost UnUsUaL’s EPS growth.
  • Initiate coverage with BUY and PE-based target price of S$0.44.



INVESTMENT HIGHLIGHTS


Good track record and regional reach.

  • UNUSUAL LIMITED (SGX:1D1) has organised many sold-out concerts for popular artistes, such as JJ Lin, Sam Smith and G.E.M (Gloria Tang Sze-wing). By doing so, UnUsUaL is able to create strong and sticky relationships with these artistes, being the exclusive organiser for their events.
  • We reckon UnUsUaL would be able to replicate this formula with other up-and-coming artistes, backed by its organisational expertise and a good track record of selling out concerts.

Expanding into more segments of entertainment.

  • UnUsUaL has branched out into different segments of entertainment, such as the family-friendly Disney on Ice and Walking with Dinosaurs shows. Having recently organised successful Disney on Ice shows in South Korea, UnUsUaL is bringing the shows to Taiwan and Shenzhen in 3QFY20.
  • Also, UnUsUaL is holding 117 Walking with Dinosaurs shows in 11 cities across Asia. Management said it is in talks with other companies to bring in more family-friendly content.
  • Coupled with a strong pipeline of concerts, we believe this new segment would boost UnUsUaL’s net profit as the company brings in more family-friendly shows from 3QFY20 onwards.

Robust growth for the concerts pipeline.

  • Following strong growth in 2QFY20, UnUsUaL is expected to continue reporting strong net profit growth, based on its strong orderbook. From 180 shows in FY19, total number of shows is expected grow to 279 in FY20 and 306 in FY21.
  • Strong revenue from 3 sold-out JJ Lin concerts, 2 Eric Chou concerts, 4 sold-out Andy Lau concerts and shows from Walking With Dinosaurs are expected to boost EPS by 26% in FY20.
  • See UnUsUaL Announcements; UnUsUaL Latest News.


STOCK IMPACT

  • Growth in production and promotions segments. Factoring in strong contributions from the growing pipeline and resilient demand for concerts, we expect strong growth in the promotions segment. We forecast promotions revenue at S$63.6m, S$75.9m and S$85.5m for FY20-22 respectively, implying a strong CAGR of 24.6% for FY19-22.
  • On the other hand, we assume production revenue would drop 5.8% y-o-y in FY20 before recording a positive 11.0% y-o-y growth in FY21 due to more resources being allocated to the promotion segment in FY20. Production revenue is forecasted at S$11.0m, S$12.2m and S$13.2m for FY20-22 respectively, implying a modest CAGR of 4.1% for FY19-22.


EARNINGS REVISION/RISK


Revenue CAGR of 20.1% for FY20-22.

  • Factoring in strong contributions from upcoming shows, we expect total revenue to increase 31.1% y-o-y in FY20 and at S$74.7m, S$88.1m and S$98.7m for FY20-22 respectively, implying revenue CAGR of 20.1% for FY20-22.

Gross margin to improve.

  • Along with the rise in revenue, we expect gross margins to rise gradually over FY20-22 as well. We opine that with more shows completed for each of the respective programmes in the pipeline, UnUsUaL would have the technical ability and know-how to reduce costs for subsequent shows. We forecast gross margin to improve from 40.8% in FY20 to 43.0% in FY22.

Net profit CAGR of 22.4% for FY20-22.

  • We forecast net profit at S$16.6m, S$20.9m and S$24.2m for FY20-22 respectively, with net margins of 22.3-24.5% and net profit CAGR of 22.4%.


VALUATION/RECOMMENDATION


Initiate BUY with a PE-based target price of S$0.44.

  • This is based on a 21.8x FY21F PE multiple, pegged to its peers average. UnUsUaL is currently trading at 17.6x FY21F PE, undervalued based on its strong revenue and EPS growth. It is also well below its long-term PE mean of 36.2x.
  • See UnUsUaL Share Price; UnUsUaL Target Price. Our target price represents an upside of 44.3%.


SHARE PRICE CATALYST


Surge in utilisation rates.

  • Earnings surprise from stronger-than-expected surge in ticket sales.

Potential big partnerships with brand names and artistes.

  • As UnUsUaL continues building its reputation as a leader player in the region, more reputable brand names and artistes may approach UnUsUaL for lucrative partnerships.

Potential takeover offer.

  • The live events industry has attracted a slew of consolidation. Live nation, the market leader, had taken stakes in four different companies with some being in the top 10 in terms of size. Being a leading player in the ASEAN region, UnUsUaL may prove to be a valuable acquisition target.
  • See attached 18-page initiation coverage report for detailed analysis on UNUSUAL LIMITED (SGX:1D1).





Llelleythan Tan UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-11-20
SGX Stock Analyst Report BUY INITIATE BUY 0.44 SAME 0.44



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