CFA Society Singapore
SINGAPORE (Feb 8): DBS Group Research is keeping its “buy” call on mm2 Asia with a marginally higher target price of 75 cents, from 73 cents previously.
This comes after the film producer and distributor saw its earnings surge 52% to $6.4 million for the 3Q ended December.
3Q18 revenue nearly trebled to $52.4 million on the back of newly-acquired cinemas in Malaysia and Singapore.
“We continue to expect strong earnings CAGR of 28% for FY17-20F, underpinned by growth in productions, expansion into the China market, and contribution from UnUsUaL,” says analyst Ling Lee Keng in a Thursday report.
“The cinema arm, on the other hand, helps the group build a recurring income base. Having a strong presence in the entire value chain of content creation and distribution further cements mm2's status as the leader in the media/entertainment industry,” Ling adds.
While the recent cinema acquisitions boosted mm2’s 3Q revenue, Ling notes that it dragged down margins.
“3Q18 net margin eased to 12.3%, from 14.6% in 2Q18 and 23.3% in 3Q17, partly due to the increasing contribution from the cinema arm, which has lower margins,” Ling says. “We have lowered FY18F to FY19F earnings by 9-11%, after accounting for slightly lower revenue from the cinema segment and higher interest costs.”
Looking forward, Ling believes that mm2 could receive a boost from its expansion into North Asia, including China, Hong Kong, and Taiwan.
“Productions in these markets are expected to continue to form a bigger part of its revenue into FY2019,” says Ling. “We expect North Asia to contribute about 70% of production revenue from FY18F, up from 36% in FY16 and 56% in FY17.”
As at 3.26pm, shares of mm2 Asia are trading half a cent higher at 50 cents, implying an estimated price-to-earnings ratio of 22.7 times for FY18.