June 4, 2019

mm2 reported 4QFY19 PATMI of S$6.2m, bringing FY19 PATMI to S$19.1m, in line with our and Bloomberg consensus forecasts. While FY19 topline surged 38.6% yoy on the back of full-year contribution from its Cathay cinema and higher sales from 39%-owned Unusual, bottomline was impacted by substantially higher financing expenses, and hence declined 14.5% yoy. While its past three years had largely been driven by M&As, we see FY20F as the year when mm2 focuses on organic growth.

According to management, Hollywood content historically contributed 80% to total box office revenue in Singapore, but Asian titles are gaining traction in recent years, just like in neighbouring countries. Rising content investments in the region, such as Turner Sports’s deal with ONE Championship and Netflix doubling down on Asia, could benefit mm2 not only in terms of higher North Asia core production revenue contribution (FY18: 57%, FY19: 71%), but also cost-savings in film rental. mm2 also saw some success in its recent “More than Blue” movie, which recorded US$153m in box office revenue.

In FY19, mm2’s cinema operations saw higher ticketing revenue (average ticket price +2.4% yoy, no. of paid admissions +11.7% yoy) and lower cost of sales for F&B. We believe the cost-savings initiatives could add at least S$1m-1.5m to its FY20F EBITDA, on top of a stronger box office performance from 2019’s robust pipeline of blockbusters and more active selling. We note that plans to partially divest its cinema subsidiary to deleverage its balance sheet remains on the cards; timing is subject to market conditions.

Unusual posted 31.7% yoy growth in FY19 net profit, thanks to rising overseas concert promotions. We expect the launch of family-themed entertainment shows and bigger overseas concerts to be Unusual’s FY20-21F earnings drivers. Vividthree continues to secure new locations for its “Train to Busan” virtual reality show. No change to Add call and SOP-based TP of S$0.37 We cut our FY20-21F EPS by 3.4-3.8% on more conservative revenue assumptions for Unusual and Vividthree; maintain Add with S$0.37 TP. –  CGS CIMB

mm2 Asia closed at: S$0.24