mm2 Asia - UOB Kay Hian 2021-06-07: FY21 Rebound In Core Production & Cinema; Better Days Ahead

MM2 ASIA LTD. (SGX:1B0)

mm2 Asia - FY21 Rebound In Core Production & Cinema; Better Days Ahead

mm2 Asia's FY21 core net loss was S$44.3m, slightly better than expected. Revenue rebounded in 2HFY21, up strongly by 178% h-o-h as mm2 Asias core business segment saw more production activities while its cinema segment reported increased ticket sales.
mm2 Asia’s production pipeline remains robust with S$97.5m in project value till 1HFY23 while its strategic pivot to streaming channels is taking shape. The cinema and concert segment recovery remains in play.
Maintain BUY call on mm2 Asia with a target price of S$0.095.

mm2 Asia (SGX:1B0) reported a FY21 core net loss (excluding impairments and other fair value loss) of S$44.3m, slightly better compared with our full-year estimate of S$47.8m. The headline loss in FY21 was $92.7m due to the COVID-19 stay-home measures. mm2 Asia recorded higher impairment losses of S$38.8m in FY21 due to the write-down in goodwill in the cinema segment and impairment of film rights, film intangibles and inventories.

Due to the low base in 1HFY21, mm2 Asia's 2HFY21 revenue of S$55.3m recovered substantially as most segments of the group (except concert & event production) saw a rebound. These included better cinema ticket sales as well as higher core production filming activities.
The reversion back to Phase 2 in mid-May 21 due to the higher number of COVID-19 cases in Singapore will likely hinder the recovery in operations though there is an extension of the job support scheme amounting to 30% for Phase 2 (heightened alert) period.

mm2 Asia completed 12 production titles in FY21 compared with 18 in FY20 as revenue dipped 29.9% y-o-y in FY21. There was lower distribution income as well as fewer projects completed due to deferment of movie titles and the closure of cinemas. Margins were softer due to lower grant income and production delay costs though management expects margins to normalise.
mm2 Asia continues to pivot its production projects to streaming services and targets 40% of content production revenue to come from streaming channels by FY22. We believe that mm2 Asia’s track record in quality production will see its core production business sought by streaming channels. mm2 Asia's core production pipeline remains sizeable amounting to S$97.5m till 1HFY23.

Revenue for the segment saw a rebound in the 2HFY21, up 236.1% h-o-h. Management noted that the release of major Hollywood titles will have a greater positive impact on financial performance as compared with capacity restrictions. With current restrictions, about two major title releases per month would enable the segment to operate on a profitable level, which we deem to be viable given the sizeable backlog of blockbusters for 2021.
As for the proposed spinoff of the cinema business, mm2 Asia is still targeting a listing in 3QFY22.
Separately, the proposed merger with Golden Village is still in progress with a submission to the Competition and Consumer Commission of Singapore expected to take place by end-Jun 21.

UnUsUaL (SGX:1D1)’s JV entity will be producing JJ Lin’s virtual concert in the coming month, for which ticket prices are S$38-188. The virtual concert was postponed from Jun to Jul 21 due to COVID-19 restrictions which affected stage and set production activities.
While virtual concerts will enable a wider reach, we believe that live concerts will still lead the way for recovery in this segment as COVID-19 restrictions are lifted. The enhanced COVID-19 testing measures and vaccinations rollout announced by the Singapore authorities should allow for larger scale events to gradually return.

Cut mm2 Asia's earnings forecasts by S$4m/S$1m for FY22/FY23. The FY22 forecast is a slight net loss position, while the FY23 earnings forecast is reduced slightly (-4%), due to the heightened alert measures in place, which will likely delay the recovery in the cinema and the concert business segments slightly.
We also introduce a FY24 earnings forecast of S$17.3m

Maintain BUY call on mm2 Asia, with a target price of S$0.095. Our target price is based on a SOTP-based valuation, with:
1. core production business at 7x EV/EBITDA, at a discount to larger-sized peers;
2. cinema business at 7x EV/EBITDA, at a discount to larger-sized peers;
3. UnUsUaL (SGX:1D1) and Vividthree (SGX:OMK) valued at market price; and
4. 30% conglomerate discount.
See

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2021-06-07

SGX Stock Analyst Report BUY MAINTAIN BUY 0.095 DOWN 0.098