SINGAPORE (June 5): CGS-CIMB Securities expects mm2 Asia to continue growing as a regional media and entertainment platform with a thriving production core business.
In addition, the research house expects full-year contribution from its Cathay acquisition, better box office performance and improving cost synergies to drive FY19F growth for its cinema operations.
In FY18, mm2 posted $192 million in revenue, driven by broad-based growth across all its four segments. This offset higher admin costs and resulted in higher core PATMI of $26.4 million.
mm2 Asia reports 42% rise in 4Q earnings to $9 mil on higher sales; FY18 earnings rise 51%
Core production business recorded 65% topline growth, of which North Asia now accounts for 57% of total production revenue, versus 46% in FY17.
mm2’s capability and expanding network in the Southeast Asian film market is also underscored by its recent three-year financing partnership with Korea-listed CJ E&M.
“We deem FY18 core net profit in line though 4% above our FY18 forecast as 4Q is a seasonally stronger quarter, forming 35% of consensus full-year numbers,” says analyst Ngoh Yi Sin in a Monday report.
Ngoh says investors’ concerns over financing the $230 million acquisition of Cathay cinemas should also ease after mm2 entered into a $115 million term loan facility as well as a $50 million MTN with 7% interest and $47.85 million convertible debt securities with 2% interest.
However, net gearing ratio should rise to 0.7 times in FY19F.
In Feb, mm2’s 51%-owned Vividthree Productions secured the licensing rights for “Train to Busan” to develop touring virtual reality (VR) shows, which should launch before Sept.
Based on indicative investor interest, Ngoh forecasts it to garner two sets in North Asia and add $2 million net profit for FY19F.
Meanwhile, 39%-owned UnUsUaL also contributed $10 million net profit in FY18, boosted by more production and promotion activities in the region.
Ngoh expects the increasing number of concerts in North Asia and upcoming 48 “Disney on Ice” shows to underpin its FY19-21F earnings growth, while the proposed 49% stake acquisition of Beijing Wish Entertainment would help strengthen its multi-territory presence.
“Our SOP-based target price is slightly lower at 72 cents, after cutting our FY19-20 EPS forecasts by 0.6-2.9% on higher financing costs, and tweaking valuation basis,” says Ngoh.
As at 2.25pm, shares in mm2 are trading 1 cent lower at 48 cents or 16.3 times FY19F core earnings.
