SINGAPORE (Oct 12): RHB Research is maintaining its “buy” call on Spackman Entertainment Group, while lowering its lower target price to 20 cents from 23 cents previously to factor in an expected dilution of shares.

This comes after Spackman yesterday announced its acquisition of Take Pictures, whose 100%-owned subsidiary is motion development picture production company Studio Take, for a total consideration of $3.9 million.

The deal will be partially funded with the issuance of 25.7 million new shares at the price of 13 cents per share.

Additionally, the group has purchased US$2.7 million ($3.7 million) worth of Spackman Media Group shares at 3 US cents each, which is also to be funded with the issuance of 28.45 million new Spackman shares at 13 cents per share.  

See: Spackman Entertainment acquires another Korean film production company for $3.9 mil

In a Wednesday report, analyst Jarick Seet says he remains optimistic on Spackman’s prospects in spite of share dilution resulting from the new share issuances, which account for 12% of the current total number of shares, given the group’s greater capacity to produce more movies as a result of its recent acquisition.

Seet says Take Pictures is likely to increase Spackman Entertainment Group’s movie production capacity to 3-4 movies per year, compared to the 1-2 films it currently produces on an annual basis.

He also expects Take Pictures to help cushion the group’s earnings from fluctuating greatly, considering the company’s robust pipeline of projects targeted to launch over the years to come.

“We believe that [Spackman’s] management may likely acquire more companies in an effort to reshape its business model and diversify its revenue stream, as well as secure more recurring revenue,” comments the analyst.

“The share price has fallen quite sharply and is now at an attractive level. This, coupled with the greater capacity to produce more movies as well as a strong pipeline of new movies launching in 2018, underpins our positive view on it outlook,” he adds.

Looking ahead, two Korean blockbuster films distributed by Spackman, Golden Slumber and Sovereign Default, are slated for release next year in 2018.

See: Spackman's Outlaws is surprise hit at Korean box office

“We think that [the acquisition of Take Pictures and the purchase of Spackman Media Group’s shares] is positive, as it shows the vendors’ strong confidence in Spackman’s outlook,” says Seet.  

As at 10.32am, shares in Spackman are trading 0.83% higher at 12 cents, implying an estimated 10 times recurring P/E for Dec-18F and 2.42 times book value.