MM2 ASIA LTD. (SGX:1B0)
mm2 Asia - Reaching Inflection Point For A Strong Recovery
- We expect mm2 Asia (SGX:1B0)'s earnings to post a sharp recovery from FY22 onwards, driven by all three segments:
- cinema attendance expected to recover as the majority of Singapore’s and Malaysia’s populations are vaccinated,
- robust pipeline of core production business of S$150m-190m in the next 2-3 years, and
- resumption of in-person concerts.
- mm2 Asia plans to launch Metaviva, a NFT marketplace.
- mm2 Asia’s 5x FY24F P/E is expected to expand closer to global peers’ average of 21x.
Cinemas: Better positioned for recovery.
- Domestic cinema attendance is poised for recovery as 93% of Singapore’s population is fully vaccinated with 60% having taken the booster shot and close to 80% of Malaysia’s population is fully vaccinated. Cinemas in Singapore and Malaysia have been allowed to reopen since 2H21, albeit at a lower capacity. Singapore’s authorities have allowed 1,000 pax per cinema hall with a 1-metre safe distancing rule between different groups while Malaysia’s cinemas are allowed to operate at 50% capacity.
- Furthermore, dining-in and food and beverage consumption in cinemas, a large and vital contributor of revenue, has been permitted in both countries which would help boost cinema revenue.
Core production business: Robust pipeline.
- Over the next 2-3 years, mm2 Asia’s core production pipeline remains sizeable, amounting to S$150-190m.
- Currently, mm2 Asia has over 30 projects that are in various stages of development, production and distribution. As production of films/tv series ramps up in FY22, mm2 is set to produce and distribute highly anticipated titles in new and existing markets. Some titles include local favourite “Ah Girls Go Army”, making S$1m in ticket sales in three days with a second sequel already being confirmed.
- Also, we believe that mm2 Asia’s track record in quality production will see its core production business sought by streaming channels, with the release of its highly anticipated “More Than Blue Series” well-received on Netflix. We expect FY22 revenue and EBITDA from the core business to grow by 37.4% y-o-y and 15.9% y-o-y respectively.
- Concerts: Restart of in-person concerts. After a lengthy hiatus, in-person concerts/shows have resumed as more countries gradually ease restrictions. In 1HFY22, UnUsUaL co-produced 59 in-person shows for circus act “La Clique” and 29 shows for local act “Boom Boom Room Live!”. Also, UnUsUaL produced two sold-out in-person JJ Lin concerts, indicating pent up demand for concerts. In a recent announcement, UnUsUaL is set to co-produce 54 concerts across 54 Chinese cities for renowned singers Angela Zhang and Kelly Yu. We expect FY22 EBITDA to break even.
Entering the Metaverse.
- mm2 Asia has plans to launch an online NFT marketplace named “Metaviva” for digital assets focusing on popular regional media content. As a comparison, the global OpenSea NFT marketplace currently boasts a valuation of US$13.3b. Theoretically, mm2 Asia's Metaviva potential valuation would be sizeable, depending on the success of its launch.
Upcoming US blockbusters to fill seats.
- 2022 is set to see a strong line-up of blockbuster movies with highly anticipated Marvel movies such as Doctor Strange in the Multiverse of Madness, Thor: Love and Thunder and Black Panther: Wakanda Forever, spread throughout 2022, boosting domestic cinema attendance.
- According to Cathay Cinemas, Spider-Man: No Way Home, which was released in Dec 21, was the highest grossing film in Singapore for 2021 with its S$10m revenue haul coming close to Avengers: Endgame’s pre-pandemic haul. This is impressive given that domestic cinemas are operating at 50% capacity and was running in cinemas for only two weeks in 2021.
Global recovery a positive sign.
- Comparing to global peers, we expect mm2 Asia to follow suit and experience a sharp recovery in earnings. AMC Entertainment, one of the largest US cinema chains, has turned EBITDA positive on the back of easing restrictions since 1Q21. Closer to home, IMAX China recovered strongly as 90% of its theatres have reopened in 1H20, with 2H21 expected to outperform y-o-y according to the company.
- No deal for cinema, IPO next. Kingsmead Properties’ (Kingsmead) S$84.8m offer for 80% of mm2 Asia’s cinema business (Cathay) collapsed in Jan 22 and Kingsmead has instead exercised its rights to convert its S$6.0m deposit into 75m mm2 Asia shares (S$0.08/share). To maximize shareholder value, mm2 Asia is still exploring other ongoing options that include an IPO of its wholly-owned cinema business sometime in 2HFY22.
- Assuming mm2 Asia sells more than 50% of Cathay, a spinoff listing would help mm2 Asia restructure its debt as almost all of mm2 Asia’s debt would be tagged to Cathay once it becomes an associate company.
- We adjust our PATMI forecasts for mm2 Asia's FY22-24 on the back of a recovery for all segments, easing restrictions and a favourable outlook. We forecast FY22-24 earnings/(loss) at (S$5.9m), S$12.0m and S$22.1m respectively, with FY24 earnings marking a full recovery to pre-COVID-19 levels, with a bargain FY24F P/E of 5.1x (global peers: 21.0x FY23F PE).
- Maintain BUY, with a higher target price of S$0.115 (S$0.095). Our target price for mm2 Asia is based on a SOTP-based valuation, with:
- core production business at 11.4x (7x) FY22F EV/EBITDA, in line with larger peers;
- cinema business at 7.4x (7x) EV/EBITDA, in line with larger peers; and
- UnUsUaL (SGX:1D1) and Vividthree (SGX:OMK) at market value.
- Catalysts: Film production delivery, full-easing of COVID-19 measures, spinoff of cinema business.
- See
Llelleythan Tan
UOB Kay Hian Research
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John Cheong
UOB Kay Hian
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https://research.uobkayhian.com/
2022-02-14
SGX Stock
Analyst Report
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