CFA Society Singapore
SINGAPORE (Oct 13): RHB is initiating coverage on South Korean move producer Spackman Entertainment Group with a “buy” recommendation and price target of 22 cents, noting the group is “probably in the best health since its IPO” in mid-2014 while presently trading at a significant discount to peers.
In a Thursday report, analyst Jarick Seet says Spackman is “primed for a strong turnaround”, especially given a strong interest of Chinese firms in South Korean content providers in the last five years.
One catalyst would be Spackman Media Group (SMG), Spackman’s 27.2%-owned subsidiary, which Seet calls a “hidden gem”. Being the largest entertainment agency in South Korea, SMG manages over 60 artistes in South Korea including A-listers such as Son Ye-Jin, Song Hye Kyo and Yoo Ahin.
“Cash raised from any stake sale of SMG shares to potential content provider partners could likely be used to fund movies in FY17, as well as share buy-backs or a potential special dividend,” comments the analyst.
RHB believes the group’s stake in SMG to be worth about US$45 million ($62.3 million).
Furthermore, Seet estimates that Spackman’s new movie, Master, could yield US$7.5 million in ticket sales, bringing Spackman’s profits to US$5.6 million and thus back into the black.
Due to open in cinemas this December, Master is a crime action drama starring South Korean A-list actors Gang Dong-won, Lee Byung-hun and Kim Woo-bin.
“The first trailer for Master generated a remarkable interest from viewers when it was released over the recent holidays in South Korea,” he adds.
Another event that could bounce Spackman back into profitability, says Seet, is the reduction of costs for the group by an estimated 70%, due to Spackman’s recent divestment of its loss-making production house, Opus Pictures.
The analyst also highlights that the group’s other production house, Zip Cinema, has a good track record and could spur Spackman’s growth going forward with its aims to make 1-2 new movies per annum.
As at 11:28am, shares of Spackman are trading 7.08% higher at 12.1 cents.