Despite posting a net loss for FY2021, mm2 Asia has robust plans in the works and is pivoting to streaming, write UOB Kay Hian research analysts Lucas Teng and John Cheong in a June 7 note.
For those reasons, Teng and Cheong are maintaining their “buy” call on the media and production company, with a lowered target price of 9.5 cents from 9.8 cents previously.
The analysts note that the core net loss was “slightly better than expected”. mm2 Asia reported a FY2021 ended March 31, 2021 core net loss (excluding impairments and other fair value loss) of $44.3 million. Teng and Cheong had estimated the company would report $47.8 million in the red.
“The headline loss in FY2021 was $92.7 million due to the Covid-19 stay-home measures. The group recorded higher impairment losses of $38.8 million in FY2021 due to the write-down in goodwill in the cinema segment and impairment of film rights, film intangibles and inventories.”
That said, revenue was up 178% h-o-h. Due to the low base in 1HFY2021, 2HFY2021 revenue of $55.3 million recovered substantially as most segments of the group (except concert and event production) saw a rebound.
See: With plans to rid debt, 'hold' mm2 Asia as the show must go on: DBS
“The reversion back to Phase 2 in mid-May 2021 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,” note Teng and Cheong.
mm2 Asia is also reaching out to streaming channels. The group completed 12 production titles in FY2021 compared with 18 in FY2020 as revenue dipped 29.9% y-o-y in FY2021. “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,” say the analysts.
The group continues to pivot its production projects to streaming services and targets 40% of content production revenue to come from streaming channels by FY2022. “We believe that the group’s track record in quality production will see its core production business sought by streaming channels,” say Teng and Cheong.
See also: Patience needed before silver screen shines again, says Melvin Ang of mm2 Asia
The mm2 core production pipeline remains sizeable, they add, amounting to $97.5 million till 1HFY2023.
The company also owns Cathay Cineplexes. 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, say Teng and Cheong. “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 3QFY2022. 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-June 2021, say the analysts.
Concert production arm UnUsUal’s joint venture entity will be producing JJ Lin’s virtual concert in the coming month, for which ticket prices are $38 to $188. The virtual concert was postponed from June to July 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 restrictions are lifted,” say the analysts.
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Teng and Cheong have cut earnings forecasts by $4 million and $1 million respectively for FY2022 and FY2023. The FY2022 forecast is a slight net loss position at $2 million, while the FY2023 earnings forecast is reduced slightly to $14 million, due to the heightened alert measures in place, which will likely delay the recovery in the cinema and the concert business segments slightly, say analysts.
They have also introduced a FY2024 earnings forecast of $17.3 million.
As at 1.45pm, shares in mm2 Asia are trading flat at 6.8 cents and at a price-to-book ratio of 0.8x.
