SINGAPORE (May 30): DBS Vickers Securities is reiterating its “buy” call on mm2 Asia, but with a lower target price of 70 cents compared to 75 cents previously after implementing a downward valuation PEG adjustment for the group, in line with peers.
Previously valued at 25 times FY19F earnings, the new target price is now pegged to 21 times, which is slightly lower than consensus’ valuation of about 22 times.
DBS has also tweaked its FY19-20F numbers slightly higher to account for the larger contribution from mm2’s core business, partly offset by higher interest cost.
mm2 on Tuesday announced 50.9% higher FY18 earnings of $26.4 million due to a doubling of revenue to $192 million, which came in 12% above DBS’ expectations on the back of strong growth across all business segments.
The group’s 51% y-o-y growth in net profit to $26.4 million, however, was in line with forecasts.
See: mm2 Asia reports 42% rise in 4Q earnings to $9 mil on higher sales; FY18 earnings rise 51%
In a Wednesday report, analyst Ling Lee Keng says that while she values mm2’s listed subsidiary UnUsUaL at current valuation, she uses 21 times P/E valuation PEG versus consensus’ 20 times for the cinema segment.
In particular, Ling believes the group’s recent acquisition of Cathay’s cinemas will help the group build a recurring income base and bolster its status at a leader in the media/entertainment industry, as the acquisition enhances mm2’s strong presence in the entire value chain of content creation and distribution.
See: mm2 Asia in option agreement to acquire Cathay Cineplexes for $230 mil
“Since the completion of acquisition of Cathay Cineplexes in May 2018, mm2 has further strengthened its position in the multiple platform businesses… Being the only cinema operator in Malaysia and Singapore, with a major presence in both countries, mm2 can now enjoy the synergistic benefits from the entire value chain,” explains the analyst.
“Vividthree’s [acquired by mm2 in 2015] foray into virtual reality (VR) to create VR tour shows based on the popular 2016 Korean blockbuster – Train to Busan – in all territories outside South Korea has transformed the group’s content creation capabilities to extend beyond films and TV,” she adds.
Going forward, Ling expects to see strong earnings CAGR of 25% FY18-20F for mm2, underpinned by growth in production, expansion into the China market, as well as contributions from UnUsUaL.
In her view, this comes especially with UnUsUaL’s proposed acquisition of Beijing Wish Entertainment, which would enable the company to offer multi-territory promotional deals.
See: UnUsUaL takes 49% stake in Beijing film production company to gain China foothold
“The group’s core business in Singapore continues to show growth, but Hong Kong, Taiwan and China are expected to grow faster. mm2 expects to see a higher number of film productions and co-productions coming out of Hong Kong, Taiwan and China as it leverages its strong network of contacts and talents,” says Ling.
As at 3:03pm, shares in mm2 are trading 1.01% lower at 49 cents or 16.95 times FY19F P/E.
