SINGAPORE (Nov 16): DBS Vickers Securities is maintaining its “buy” call on mm2 Asia with a lower target price of 50 cents compared to 62 cents previously, after the group’s 1H19 results came in below expectations.

To recap, mm2 Asia reported revenue of $113.9 million for 1H19 after 2Q net earnings were hit by higher interest costs, including a one-off charge in relation to its purchase of Cathay cinema.

In its latest report on Thursday, analyst Ling Lee Keng says she has imputed slower growth ahead for mm2’s core production segment on the back of the delay of key title releases to-date.

She also notes that it will take time to the group’s entire value chain to reap the full benefits of the recent Cathay acquisition.

Nonetheless, Lee continues to project FY18-21F revenue and gross profit CAGR of 23%, as well as a lower 14% for net profit due to higher interest costs.  The new target price of 50 cents is pegged to 16 times FY19F earnings for both the core and cinema business, as well as current valuations for its subsidiaries UnUsUaL and Vividthree.

“We expect North Asia to contribute about 60% of production revenue from FY19F, up from 36% in FY16, 56% in FY17 and 57% in FY18. Upside to earnings would come from more projects, especially in China, where the market is bigger and budgets are much larger,” says Ling.

As at 1.22pm, shares in mm2 Asia are trading 1.4% lower at 35 cents or 16.5 times FY19F earnings.