MM2 ASIA

MM2 ASIA| BUY

TARGET PRICE: $0.70

MAY 30 CLOSE: $0.485

DBS Group Research, May 30

We continue to expect strong earnings Compound Annual Growth Rate (CAGR) of 25 per cent for FY18-20 forecast, underpinned by growth in production, expansion into the China market, and contribution from UnUsUaL.

The stronger cinema arm, with the completion of Cathay cinema acquisition, 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.

FY18 revenue doubled year-on-year to $192 million – 12 per cent above our expectations while net profit of $26.4 million (+51 per cent y-o-y) was in line with our forecast. All business segments registered strong growth. Upside to earnings would come from more projects, especially in China, where the market is bigger and budgets are much larger.

Our sum-of-parts target price is now $0.70, pegged to 21 times FY19F earnings for core business, cinema and post-production segment, and current valuation for UnUsUaL, reduced from 25 times previously, in line with peers. Key risks include no long-term financing arrangements for productions and unavailability of good scripts.

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