June 7, 2021

FY21: Rebound In Core Production & Cinema; Better Days Ahead

FY21 core net loss was S$44.3m, slightly better than expected. Revenue rebounded in 2HFY21, up strongly by 178% hoh as the group’s core business segment saw more production activities while its cinema segment reported increased ticket sales. The group’s production pipeline remains robust with S$97.5m in project value till 1HFY23 while its strategic pivot to streaming channels is taking shape. The cinema and concert segment recovery remains in play. Maintain BUY with a target price of S$0.095.

RESULTS

Core net loss slightly better than expected. mm2 Asia (mm2) reported a FY21 core net loss (excluding impairments and other fair value loss) of S$44.3m, slightly better compared with our full-year estimate of S$47.8m. The headline loss in FY21 was $92.7m due to the COVID-19 stay-home measures. The group recorded higher impairment losses of S$38.8m in FY21 due to the write-down in goodwill in the cinema segment and impairment of film rights, film intangibles and inventories.

Revenue up 178% hoh. Due to the low base in 1HFY21, 2HFY21 revenue of S$55.3m recovered substantially as most segments of the group (except concert & event production) saw a rebound. These included better cinema ticket sales as well as higher core production filming activities. The reversion back to Phase 2 in mid-May 21 due to the higher number of COVID-19 cases in Singapore will likely hinder the recovery in operations though there is an extension of the job support scheme amounting to 30% for Phase 2 (heightened alert) period.

STOCK IMPACT

Core business: Reaching out to streaming channels. The group completed 12 production titles in FY21 compared with 18 in FY20 as revenue dipped 29.9% yoy in FY21. There was lower distribution income as well as fewer projects completed due to deferment of movie titles and the closure of cinemas. Margins were softer due to lower grant income and production delay costs though management expects margins to normalise. The group continues to pivot its production projects to streaming services and targets 40% of content production revenue to come from streaming channels by FY22. We believe that the group’s track record in quality production will see its core production business sought by streaming channels. The mm2 core production pipeline remains sizeable amounting to S$97.5m till 1HFY23.

Cinema: Awaiting major cinematic releases. Revenue for the segment saw a rebound in the 2HFY21, up 236.1% hoh. Management noted that the release of major Hollywood titles will have a greater positive impact on financial performance as compared with capacity restrictions. With current restrictions, about two major title releases per month would enable the segment to operate on a profitable level, which we deem to be viable given the sizeable backlog of blockbusters for 2021. As for the proposed spinoff of the cinema business, mm2 is still targeting a listing in 3QFY22. Separately, the proposed merger with Golden Village is still in progress with a submission to the Competition and Consumer Commission of Singapore expected to take place by end-Jun 21.

Concerts: Virtual concerts for now. UnUsUal’s JV entity will be producing JJ Lin’s virtual concert in the coming month, for which ticket prices are S$38-188. The virtual concert was postponed from Jun to Jul 21 due to COVID-19 restrictions which affected stage and set production activities. While virtual concerts will enable a wider reach, we believe that live concerts will still lead the way for recovery in this segment as COVID-19 restrictions are lifted. The enhanced COVID-19 testing measures and vaccinations rollout announced by the Singapore authorities should allow for larger scale events to gradually return.

EARNINGS REVISION/RISK

Cut earnings forecasts by S$4m/S$1m for FY22/FY23. TheFY22 forecast is a slight net loss position, while the FY23 earnings forecast is reduced slightly (-4%), due to the heightened alert measures in place, which will likely delay the recovery in the cinema and the concert business segments slightly. We also introduce a FY24 earnings forecast of S$17.3m

VALUATION/RECOMMENDATION

Maintain BUY, with a target price of S$0.095. Our target price is based on a SOTP valuation, with: a) core production business at 7x EV/EBITDA, at a discount to larger-sized peers; b) cinema business at 7x EV/EBITDA, at a discount to larger-sized peers; c) UnUsUaL Limited and Vividthree Productions valued at market price; and d) 30% conglomerate discount.

SHARE PRICE CATALYST

• Film production delivery.

• Easing of COVID-19 measures.

• Spinoff of cinema business.

BUY by UOB Kay Hian Research. Share price closed at $0.069.