SINGAPORE (Nov 2): DBS Vickers is reiterating its “buy” call on mm2 Asia with a higher target price of 73 cents, saying the acquisition of Cathay Singapore sets the stage for sustainable growth.
mm2 Asia announced on Thursday morning it is acquiring a 100% stake in Cathay Singapore for $230 million or 13.8 times EBITDA.
See: mm2 Asia in option agreement to acquire Cathay Cineplexes for $230 mil
Cathay is the second largest cinema chain in Singapore with a market share of 27%.
DBS analyst Ling Lee Keng says mm2 would have a stronger presence in the entire value chain of content creation and distribution, upon the completion of the proposed acquisition of Cathay cinema chain, which is expected to be completed by end November 2017.
The acquisition will complement its current cinema operations in Malaysia, and further cement mm2's status as the leader in the media/entertainment industry.
With a much larger and stronger scale, mm2 can now enjoy the synergistic benefits from the entire value chain.
“We continue to project mm2 Asia's EPS to grow at a CAGR of 65% from FY16-FY19, underpinned by growth in productions, expansion into the China market, and contribution from UnUsUaL. The cinema arm, on the other hand, helps the group build a recurring income base,” says Ling.
DBS is valuing mm2 Asia’s production business at 28x PE, in line with peers listed in Asia, vs consensus’ valuation of about 25x. For UnUsUaL, the research house is valuing it at current valuation while the cinema segment is pegged at a valuation of 21x PE.
Shares in mm2 Asia are down 2 cents at 56 cents.
