UnUsUaL - UOB Kay Hian 2020-05-28: 4QFY20 Weak Quarter Due To COVID-19 & Safe Distancing Measures; Downgrade To HOLD

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

UnUsUaL - 4QFY20 Weak Quarter Due To COVID-19 & Safe Distancing Measures; Downgrade To HOLD

  • Due to the ongoing COVID-19 outbreak, UnUsUaL’s FY20 net profit fell sharply to S$6.3m (-51.9% y-o-y) as the pandemic devastated demand for live events. Net profit forms only 52.1% of our estimate.
  • FY20 gross profit fell 42.9% y-o-y as many concerts got postponed in 4QFY20. With safe distancing measures starting to be relaxed, this will provide some tailwinds for UnUsUaL.
  • Downgrade to HOLD with a lower PE-based target price of S$0.123 (from S$0.32). Entry price: S$1.11.



UnUsUaL's 4QFY20 Results


FY20 results dragged by ongoing COVID-19 pandemic.

  • UnUsUaL (SGX:1D1) recorded higher revenue of S$61.9m (+8.8% y-o-y) for FY20, forming 116% of our estimate. This was largely due to higher ticket sales and contributions from larger-scale projects in 9MFY20 from the Promotion segment. However, net profit fell sharply to S$6.3m (-51.9% y-o-y) as the COVID-19 pandemic devastated demand for live events, with net profit forming only 52.1% of our estimate. This was largely due to gross profit falling by 42.9% y-o-y as many concerts were cancelled or postponed in 4QFY20.

Underperformance in both Promotion and Production segments.

  • Although promotion revenue was up 26% y-o-y at S$55.7m in FY20, UnUsUaL's production revenue fell 48.3% y-o-y to S$6.1m. The increase in promotion revenue was mainly due to the popularity of the artistes brought in on the back of UnUsUaL’s strong relationships with artistes, which translated into higher ticket sales.
  • The lower production revenue was due to smaller-scale production services for FY20 and cancellations of events in 4QFY20.

Management has implemented cost-cutting initiatives.

  • In a bid to preserve cash, management has implemented measures, including reduction in payroll, cutting all discretionary expenses and negotiating for revised payment terms on existing commitments. Also, management is in discussions with various artistes to reduce artiste fees and has managed to maintain its existing pipeline of events.


STOCK IMPACT


Easing of safe distancing measures.

  • Asian countries that have successfully kept COVID-19 at bay have either started or are in the midst of relaxing safe distancing measures. With a strong focus on Mandopop artistes, UnUsUaL is set to benefit from this industry tailwind.
  • We have learnt that UnUsUaL plans to organise 20 concerts in China, Hong Kong and Taipei, starting Sep 20. However, we reckon that sentiment towards attending crowded live events such as concerts will remain weak before a vaccine is found and is widely available.

Management targets to hold concerts in Singapore by Nov 20.

  • As Singapore exits its circuit breaker in three phases, services and activities that involve significant prolonged close contact or significant crowd management risk in an enclosed space such as concerts will only be allowed to re-open in phase 3, subject to safe management measures.
  • Depending on the timeline for phase 3, management has targeted to organise concerts in Singapore by Nov 20. However, due to safe distancing measures, concerts and live events would have to halve their seating capacity to encourage safe distancing. This will impact revenue and net profit.


EARNINGS REVISION/RISK


We slash net profit forecasts for FY21-22 and introduce FY23 forecast.

  • We believe the COVID-19 pandemic as well as safe distancing measures have affected demand for live events. We slash our revenue and net profit forecasts for FY21 to S$28.0m (from S$66.4m) and S$2.1m (from S$15.1m) respectively.
  • As we see demand picking up and rebounding in FY22, our revenue and net profit forecasts for FY22 are now S$44.7m (from S$75.7m) and S$6.1m (from S$17.6m) respectively.
  • Our FY23 forecasts for revenue and net profit are S$60.7m and S$9.4m respectively.


VALUATION/RECOMMENDATION


Downgrade to HOLD

  • Downgrade UnUsUaL to HOLD with a lower target price of S$0.123 (previously S$0.32), based on 20.6x FY22F PE, pegged to regional peers’ average. We reckon that the discovery of a COVID-19 vaccine and the full relaxation of safe distancing measures can lead to a re-rating for UnUsUaL.
  • Entry price: S$1.11.


SHARE PRICE CATALYST


COVID-19 vaccine discovery.

  • A potential vaccine discovery would help boost sentiment and demand for live events.

Potential takeover offer.






Llelleythan Tan UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-05-28
SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.123 DOWN 0.320



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