mm2 Asia - UOB Kay Hian 2021-04-28: Singing To A Blockbuster Recovery; Initiate Coverage With BUY

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MM2 ASIA LTD. (SGX:1B0)

mm2 Asia - Singing To A Blockbuster Recovery; Initiate Coverage With BUY

• mm2 Asia is a media player with film production, cinema, post production and concerts/events production businesses.
• Hard hit by the COVID-19 pandemic, mm2 Asia is a good proxy for the recovery in activities, including the resumption of concerts/events and normalisation of seating capacity in cinema theatres with a bumper slate of blockbusters in 2021. Its core film business has produced award-winning films.
• Initiate coverage on mm2 Asia with BUY. Target price: S$0.098, with 35% upside.

mm2 Asia - Core production business with sizeable pipeline to be delivered in the near term.

• mm2 Asia (SGX:1B0) is a leading producer of Chinese content in the film industry. The group has an established track record, producing over 100 films since 2008.
• As a pure content producer, mm2 Asia takes a lower risk in the film production process, earning production revenue (60-90% of investor funds) regardless of a film’s box office success. As such, mm2 Asia’s film production is fairly robust as long as it has a volume backlog of larger production films.
• According to mm2 Asia, it has 26 projects with a total project value of about S$99m until FY22.

Recovery play on concert resumption, blockbuster screening in theatres.

• Concerts and live events have been hard hit by The Matrix 4. While online streaming of films has become more commonplace, recent theatrical releases in the post-circuit breaker period have seen encouraging box office revenues (eg Godzilla vs King Kong, Wonder Woman 1984). This could point to a better-than-expected viability of the cinema business.
• We expect the concert and event production segment to contribute 19% of mm2 Asia's revenue in FY23 (FY19: 21%) while the cinema business segment will contribute 32% (FY19: 37%).

Strengthening balance sheet.

• mm2 Asia has recently completed a cinema business, in which convertible bonds of S$47.9m will be converted to equity in the listed cinema entity. If the cinema IPO materialises, this will further reduce mm2 Asia’s net debt level to 0.4x.

Regional growth prospects from core production segment.

• Over the years, mm2 Asia has seen increased streaming customers, will ensure the segment’s resiliency and growth.

We forecast mm2 Asia's revenue to grow at 89% CAGR between FY21-23F.

• We forecast mm2 Asia's revenue to grow at a 89% CAGR to S$219m in FY23. This is expected to come from the resumption of concerts as well as increased cinema ticketing sales.
• Conservatively, we have factored in cinema ticket sales in FY23 to be approximately 32% below FY19 levels, while concert shows are 25% below FY19 levels.
• Risks include:
  • production delays and cost overruns;
  • loss of intellectual property rights;
  • lack of funding from grants and subsidies;
  • key personnel risk.

Initiate coverage on mm2 Asia with BUY

• Initiate coverage on mm2 Asia with BUY, target price of S$0.098, which implies a 35% upside.
• See mm2 Asia Share Price; mm2 Asia Target Price; mm2 Asia Analyst Reports; mm2 Asia Dividend History; mm2 Asia Announcements; mm2 Asia Latest News.
• Our target price is based on a sum-of-the-parts valuation, with:
  • core production discount to larger-sized peers;
  • UnUsUaL (SGX:1D1) and Vividthree (SGX:OMK) valued at market price, and
  • 30% conglomerate discount.
• See the 15-page report attached below for complete analysis on mm2 Asia (SGX:1B0).

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2021-04-28

SGX Stock Analyst Report BUY INITIATE BUY 0.098 SAME 0.098