SINGAPORE (June 15): CIMB is keeping its “add” rating on mm2 Asia and raising its target price to 72 cents, from 65 cents previously, on the back of higher earnings per share (EPS) forecasts.
This comes after the film maker on Tuesday entered into an agreement to acquire a 50% stake in the Golden Village (GV) cinema business in Singapore for $184.3 million.
“At 10.5x FY16 EBITDA and 14.7x FY16 P/E, $184.3 million seems pricey relative to previous cinema acquisitions in Malaysia,” says CIMB lead analyst Ngoh Yi Sin in a Wednesday report.
According to Ngoh, mm2 previously bought 13 Lotus Fivestar cinemas at only 9.8x EBITDA.
But the hefty price tag on Golden Village might well be worth it.
“This proposed acquisition not only builds up a recurring income stream for the company and complements its current cinema operations, but also extends its presence beyond Malaysia,” Ngoh says.
Singapore’s leading cinema exhibitor, GV currently owns 11 cinemas and 91 screens which rake in 44% of market share based on box office receipts. GV also has plans to open three more cinemas at SingPost, Bedok, and Funan over the next three years.
“GV is a prized asset that comes with quality facilities, prime locations and superior profitability,” Ngoh says. “Apart from opening new cinema sites, we expect GV to sustain its steady earnings growth, underpinned by a strong film pipeline and improved movie experience.”
The analyst expects the deal, which is likely to be financed by a mix of debt and equity, to be completed by the end of the third quarter of 2018.
(See also: mm2 Asia to raise $49 mil in private placement)
"As we factor in potential earnings contribution from the GV Singapore business, our FY18-20 EPS estimates increase by 18.1-18.7%, offsetting additional financing costs and new share dilution,” Ngoh says.
However, she warns that the deal could also see mm2’s net gearing ratio hiked to 63.0%.
“With a seemingly stretched balance sheet, funding future acquisitions may become a concern,” says Ngoh.
As at 11.56am, shares of mm2 Asia are trading 1.5 cents lower at 58.5 cents.
