Excerpts from DBS analyst report
Analyst: Ling Lee Keng
Upgrade to BUY as value emerges
|Value emerging; upgrade to BUY. Share price has shed 27% since our downgrade to HOLD after the release of 3QFY19 results in February.
mm2 paid 13.8x for the Cathay cinema chain in Singapore and about 8-9x for the Malaysia cinemas while peers are trading at about 5.5x P/EBITDA.
Where we differ: Slight difference in valuation peg vs consensus. We value the production segment based on PE and P/EBITDA for the cinema.
For UnUsUaL and Vividthree, we value these at current market valuation, vs PE valuation used by consensus. Potential catalyst: More projects especially in North Asia; successful cinema operation spinoff.
Upgrade to BUY, TP S$0.34. Our sum-of-parts target price of S$0.34 is pegged to 16x FY20F earnings for core business, in line with peers listed in Asia, 5.5x P/EBITDA for cinema business, and current market valuation for UnUsUaL and Vividthree.
Key Risks to Our View:
No long-term financing arrangements for productions. The commencement of each production is dependent on mm2’s ability to secure funding.
Unavailability of good scripts. Lack of good scripts for production may lead to less support from stakeholders.
Full report here.