SINGAPORE (Aug 14): DBS is reiterating its “buy” call on mm2 Asia after lowering its target price estimate on the stock to 60 cents from 75 cents previously to account for share dilution post its equity fundraising exercise, as well as the cancellation of its Golden Village cinema chain acquisition.
To recap, the entertainment group had previously called off its proposed acquisition of the Golden Village (GV) cinema business in Singapore via Village Cinema Australia’s stake in Dartina Development.
See: mm2 Asia refunded $8 mil deposit for Golden Village Cinema business acquisition
In a Monday release, analyst Ling Lee Keng notes that the uncertainties surrounding the GV deal has caused mm2’s share price to drop by more than 20%, and says a conclusion of the deal, as well as better clarity on the strategy for the group’s cinema business, should help to set the foundation for more sustainable growth ahead.
Lee nonetheless expects healthy earnings per share (EPS) growth of 9% for the group in FY18F and a much stronger 34% growth for FY19F, after factoring in the enlarged share capital from mm2’s recent equity fundraising exercise.
The research house is valuing mm2’s production business at 28 times PE, in line with peers listed in Asia, versus the consensus’ valuation of about 25 times.
For the group’s subsidiary UnUsUal, DBS is valuing it at current valuation while using 21 times PE valuation peg for the cinema segment.
“[mm2’s] strong set of 1Q18 results, with net profit up 30% to S$6.4m, further reinforces our positive view,” says the analyst.
See: mm2 sees 1Q earnings rise 30% to $6.4 mil on higher revenue
“We continue to project mm2's EPS to grow at a CAGR of 54% 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,” she adds.
As at 3.18pm, shares of mm2 Asia are trading 1 cent higher at 48 cents.
