SINGAPORE (Mar 26): Maybank Kim Eng would rather wait for mm2 Asia’s cinema division to make disclosures in its fiscal-year-end reporting before changing its forecasts.

Good showing at the box office by mm2’s latest movie “More Than Blue” has led to another tie-up with Fox Networks Group Asia which has likely driven the stock’s recent re-rating.

Unfortunately, mm2’s Cathay cinema acquisition “has clouded all interim visibility of its production business and overall prospects” due to leverage.

And although upcoming fiscal-year results could provide visibility of all parts, this would be followed by a nine-month revenue fog unless management enhances interim disclosures, says Maybank.

“We think optimism has been priced in and downgrade the stock to ‘hold’ from ‘buy’. Maintain our 1x PE-based target price of 34 cents,” says analyst Luis Hilado in a Monday report.

Although mm2 itself is not an investor in “More Than Blue”, the company stands to gain from 8-12% producer bonus fees from any hits, says the analyst.

What the market is anticipating though are gains more proportionate to the $66 million box office grossed by the movie over its first weekend in China.

Hilado also notes that mm2 has entered into a $115 million refinancing facility that could lower its future interest expenses.

In practice, by focussing on production rather than film investments, mm2 can be insulated from earnings volatility, in either direction.

In theory, the more hits mm2 produces would burnish its reputation and help it bag future production work from global players – hence, its recent Netflix and Fox production deals.

“We continue to view its content-production business favourably, supported by a healthy pipeline. Big-screen content risks due to changing - and a new generation of - viewer habits remains a perception issue, hence more content for streaming could be essential,” says Hilado.

As at 11.42am, shares in mm2 Asia are trading 0.5 cent lower at 31 cents.