SINGAPORE (Nov 20): CGS-CIMB Securities is maintaining mm2 Asia at “add” as it is seen as a proxy for higher content consumption in the region.

mm2 recently announced its maiden co-production with Netflix with the movie “Triad Princess”.

In a recent report, analyst Ngoh Yi Sin says while productions under the B2B model tend to command lower margins vs B2C ones which are meant for the big screen, their payment terms are better as full funding is usually provided upfront.

“We see mm2 as a beneficiary of rising demand for Asian content and increasing Netflix penetration into Asia. Pipeline for core production remains robust with 82 shows,” says Ngoh.

In addition, the stock currently trades at 12.6x FY20F earnings, cheaper than the sector average of 31x earnings after its recent share price correction.

To recap, mm2’s 2Q19 core PATMI of $3.7 million was below expectations as it formed only 11% of CGS-CIMB’s full-year numbers.

While 2Q19 revenue doubled on higher contribution from newly-acquired cinema operations, core production and event businesses, earnings were impacted by higher-than-expected tax rates and interest expenses including a one-off charge relating to the Cathay cinema acquisition.

In 1H19, some of the key cinema metrics showed progress, including higher average ticket price, higher average F&B spending by movie-goers and lower F&B cost of sales. The general utilisation of its Cathay Singapore cinema assets was also slightly higher than the industry average at 32%.

With a separate listing platform, both 39%-owned UnUsUaL and 42%-owned Vividthree have embarked on a different growth trajectory.

Apart from more concerts in North Asia and diversification into family entertainment, UnUsUaL recently became an IP owner of Apollo travelling shows. Vividthree will soon open its first ‘Train to Busan’ VR tour set.

CGS-CIMB is cutting its FY19-21F EPS by 4-25% on lower revenue and higher financing costs and lowering its SOP-based target price to $0.50 on lower EPS forecasts and valuation multiples.

"Maintain Add as we still see mm2 as a proxy for higher content consumption in the region," says Eing.

Year to date, shares in mm2 are down 19 cents at 34 cents or 15.5 times FY19F earnings.