MM2 ASIA LTD. (SGX:1B0)
mm2 Asia - No Show For Now
- We cut our FY20-22F EPS to factor in extended Covid-19 impact across all its subsidiaries. Downgrade mm2 Asia (SGX:1B0) from Add to HOLD with a lower Target Price.
- Apart from earnings risks in a prolonged virus situation, we also turn wary of mm2 Asia's leveraged balance sheet and working capital-intensive business.
- mm2 Asia's share price has de-rated significantly but we see some value in mm2 Asia’s assets.
- Successful asset restructuring and faster recovery are key catalysts.
Severely hit by Covid-19 and government measures
- mm2 Asia’s entire value chain of content creation has not been spared by the Covid-19 spread: its core content production operations in North Asia, Singapore and Malaysia were halted as countries imposed lockdowns and implemented movement restrictions, while its event-organising subsidiary (UnUsUaL (SGX:1D1) Productions) also faced cancellations/deferment of large-scale concerts.
- Such disruptions, coupled with pent-up demand for quality content, are likely to underpin the growth in mm2 Asia’s core business order book and concert pipeline when the virus situation improves, in our view.
Entertainment venues shut, mega movie releases held back
- We expect the untimely outbreak of Covid-19 to hurt mm2 Asia’s cinema operations given that its fiscal 4Q is seasonally the strongest. Apart from the reschedule of Hollywood mega-movie releases, we expect the recent ban on entertainment outlets in Singapore until at least 30 Apr to further weigh on its FY21F earnings.
- Meanwhile, management has implemented cost-cutting initiatives and seeks to tap on available government support packages, as well as negotiate for rental rebates to cushion the impact.
High leverage is a rising concern…
- With the temporary closure of its cash-generating cinema assets and a 0.87x net gearing as of end-2QFY20, mm2 Asia could be exposed to both earnings and balance sheet risks, in our view.
- About 74% of mm2 Asia's total borrowings at end-Sep 19 were long term, though c.S$98m liabilities will be due by 2021F. While there is no immediate cashflow concern based on its recent announcement on collection of trade receivables and our projected FY20F interest coverage ratio of c.3x for mm2 Asia, we remain cautious on funding for its future projects, receivables’ collectability and debt repayment issues should the situation drag on.
Downgrade from Add to HOLD with EPS cuts
- We slash our FY20-22F EPS by 19.0-35.0% and lower our valuation multiples to account for disruptions across the various segments; our SOP-based Target Price falls to S$0.13.
- Downgrade mm2 Asia from Add to HOLD on near-term earnings weakness.
- See mm2 Asia Share Price; mm2 Asia Target Price; mm2 Asia Analyst Reports; mm2 Asia Dividend History; mm2 Asia Announcements; mm2 Asia Latest News.
- Even with the recent mm2 Asia's share price decline, we still see value in mm2 Asia’s assets. Faster recovery from Covid-19 and successful asset restructuring are key re-rating catalysts for the stock.
- Downside risks: balance sheet mismanagement and unexpected production delays.
NGOH Yi Sin
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-04-01
SGX Stock
Analyst Report
0.13
DOWN
0.320
