With cinemas shut for most of the year and concerts at a standstill, media production company mm2 Asia is at an inflexion point. While DBS Group Research says mm2 Asia is on the path to recovery,  the company needs to execute plans to rid its debt and turn around post-Covid-19.

In a May 31 note, DBS Group Research analyst Ling Lee Keng is maintaining “hold” on the company with a lowered target price of 67 cents from 89 cents previously, representing a 12% upside. 

“mm2 Asia has proposed several initiatives to pare down its debt. These include the spin-off and listing of the cinema business, and merger of the cinema business with Golden Village cinemas in Singapore. With the strong recovery in 2HFY2021, we believe that the group is on the recovery path but the execution of these initiatives is key for the group to turn around,” notes Ling. 

Dragged by higher impairment charges, mm2 Asia reported higher than expected losses for FY2021 ended March 31, 2021.

See: Buffeted by cinema closures, mm2 Asia reducing gearing with corporate actions: analysts

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mm2 Asia reported group revenue of $75.24 million, down 68.1% y-o-y, mainly due to the Covid-19 pandemic. All major businesses in movies and drama production, film exhibitions and distributions as well as live entertainment were adversely affected since January 2020. 

In particular, the cinemas and event businesses were shut for most of the year. The core business was mainly affected by fewer projects completed and lower distribution income due to intermittent cinema closures in the countries where the group operates in as well as deferment of movie title releases. The group completed 12 production titles in FY2021 compared to 18 in FY2020.

See also: Patience needed before silver screen shines again, says Melvin Ang of mm2 Asia

The group also recorded higher impairment losses of $38.8 million, compared to $10.7 million in FY2020, due to the impairment of film rights, film intangibles and inventories, films under production and goodwill in the cinema segment. Hence, overall net loss for FY2021 was $102.0 million. 

On a positive note, Ling notes that the group was still able to generate positive EBITDA before impairment charges and achieved positive operating cashflow of $3.9 million in FY2021. 

“We believe that the group is on the recovery path. The core business segment should lead the recovery with project pipeline of $80.7 million, which offers earnings visibility up to FY2022. However, the cinema operation and event & concert production are still dependent on the easing of Covid-19 lockdowns,” says Ling.

On streaming, mm2 Asia is currently working with major OTT (over-the-top) streaming content players in the industry. The group targets to derive 40% of its content production revenue from these streaming channels by FY2022. These leading platforms include Netflix, HBO GO, HBO Max, Hulu, Amazon Studios, iQiyi International, Youku and Tencent. 

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“Overall, we expect the group to be still loss-making in FY2022F and FY2023F, pending the execution of the proposed initiatives to deleverage,” notes Ling. Ling expects a net loss of $17.4 million in FY2022F moderating to $7.8 million the following FY.  

As at 2.05pm, shares in mm2 Asia are trading 0.1 cent lower, or 1.61% down, at 6.1 cents and at a price-to-book value (P/BV) of 0.3x.