Awaiting deleveraging initiatives
Reduced net loss for FY22, but still below expectations
FY22 net loss decreased to S$35.8m, but still below expectations. mm2 Asia reported net loss of S$35.8m, an improvement from the S$90.8m loss in FY21. Revenue saw a 50% y-o-y increase to S$113m, driven by the further relaxing of COVID-19 restrictions in Singapore and Malaysia. Overall, FY22 results were below expectations, as we were expecting the net loss to reduce further, to S$17.4m.
Expect strong recovery within 12 to 18 months. With the lifting of most restrictions from April 2022, business conditions are expected to improve going forward. For the cinema segment, with the release of more titles and consumers returning to the new normal, business has gradually picked up. Additionally, concert businesses in Singapore and Malaysia have been able to operate at full capacity since April 2022. The group is seeing strong demand for regional content, global cinema box office recovery, as well as expected pent-up demand for concerts and events as COVID restrictions ease.
Fundraising to accelerate post-COVID recovery growth plan. After a tough ride in the last two years, the group is beginning to see positive traction for its businesses as more markets emerge from the pandemic. To ride on this recovery path, mm2 conducted two fundraising exercises in the last two months, raising S$25.5m via the placement of new shares. The group placed 75m new shares at S$0.08 in March 2022, and another tranche of 390m new shares at S$0.05 to Singaporean businessmen Sam Goi and Oei Hong Leong in April 2022. In April 2021, the group raised S$54.6m via a rights issue of shares.
Riding on the reopening theme, but more concrete debt-paring plans need to be in place to ensure turnaround. With the reopening of the global economies, we can expect a strong recovery for the group’s projects, including content production and concerts. A key bright spot is the resumption of concert production, where its 39%-owned subsidiary UnUsUaL will be a key beneficiary. UnUsUaL is the first to present a large-scale, indoor LIVE concert (A-LIN – A LINK WITH PASSENGERS WORLD TOUR) at the Singapore Indoor Stadium on 28 May 22, since “reopening” or the relaxation of the safe management measures.
However, its high gearing will still be a main drag on the group. More concrete plans need to be in place to address this hurdle to stage a swift turnaround.
Exploring new avenues to reduce gearing; initial plans have lapsed. mm2 Asia had proposed several initiatives in the past to pare down its debt, but these have since lapsed. Previous proposals include spin-off and listing of cinemas, sale of cinemas, and merger of the cinema business with Golden Village cinemas in Singapore. The group continues to explore new avenues to pare down its debt.
Maintain HOLD with lower TP of S$0.06; suspending coverage. We project the group to register net loss of S$13.4m in FY23F, vs. our earlier expectation of S$7.8m, on the back of the 30% cut in revenue projection, partly offset by higher gross margin assumptions of 24.5%, vs. 17.8% previously. Our sum-of-the-parts TP is reduced to S$0.06, from S$0.067, mainly due to the company’s enlarged share capital after the recent placements.
We are suspending coverage on the stock due to the reallocation of resources.