February 9, 2018

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. 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. With a much larger and stronger scale, especially with the completion of the Cathay cinema acquisition, mm2 can now enjoy the synergistic benefits from the entire value chain.

3Q18 revenue surged 190% y-o-y to S$52.4m, boosted by newly acquire cinemas in Malaysia and Singapore. Net earnings jumped by a smaller 53% to S$6.4m on lower margins.

Higher valuation peg vs consensus. We value the production business at 25x PE, in line with peers listed in Asia, vs consensus’ valuation of about 22x. For UnUsUaL, we value it at current valuation. For the cinema segment, we use 21x PE valuation peg.

Reaping the fruits of labour in North Asia. We expect North Asia to contribute >70% of production revenue from FY18F, up from 36% in FY16 and 56% in FY17. Upside to earnings would come from more projects, especially in China, where the market is bigger and budgets are much higher. Reiterate BUY, TP of S$0.75 by DBS Equity Research. Share price closed at S$0.465