With growing immunity to Covid-19, recovery is on track for mm2 Asia, say UOB Kay Hian Research analysts Llelleythan Tan and John Cheong.
“The cinema and concert segments have reached inflection points where business is ramping up while the core production business experiences growing demand. The group is exploring options to refinance its maturing debt which may include an IPO or divestment of its Cathay cinema business,” write Tan and Cheong.
In a June 10 note, Tan and Cheong are maintaining “buy” on mm2 Asia with an unchanged target price of 11.5 cents. This represents a 104.8% upside.
mm2 Asia reported a headline PATMI loss of $35.8 million in FY2022 ended March, narrowing from its $90.8 million loss from FY2021. Its FY2022 revenue grew 50.2% y-o-y as the group’s business operations recovered.
However, excluding goodwill impairments of around $15.5 million, FY2022 core PATMI loss would have been around $20.0 million, a sharp improvement from the $50.8 million core PATMI loss in FY2021.
For 2HFY2022, revenue (up 20.6% y-o-y) and PATMI loss (up 61.7% y-o-y) “improved sharply” as Singapore and Malaysia started to partially relax their Covid-19 restrictions, write the analysts.
mm2 Asia’s sharp rebound was largely boosted by strong contribution from the cinema business as Covid-19 restrictions were fully relaxed in April, say the analysts. “Backed by the blockbuster Spiderman: No Way Home, record-high cinema ticket sales led to a robust recovery in the cinema segment. Also, coupled with easing restrictions and international borders reopening, the group’s regional core production business has started to ramp up as demand starts to pick up.”
They add: ”Moving forward, upcoming concerts in Singapore are expected to aid in mm2 Asia’s recovery due to strong pent-up demand for live concerts.”
Over the next two to three years, mm2 Asia’s core production pipeline remains “sizable” at $150 million to $190 million, say the analysts. Currently, the group has over 30 projects that are in various stages of development, production and distribution. Coming off its success from Ah Girls Go Army, mm2 Asia is set to distribute Ah Girls Go Army 2 on June 16, which is expected to perform well domestically, they add.
“Also, we believe that the group’s track record in quality production will see its core production business sought by global streaming channels, with the release of its highly anticipated More Than Blue: The Series well-received on Netflix.”
Justin Bieber concert ‘sold out without hours’
An upcoming concert was sold out within hours, note the analysts. “As Singapore only fully relaxed restrictions in April, physical concerts were still on pause for 2HFY2022.”
UnUsUaL Entertainment (UnUsUaL) held its first live concert on May 28 for Taiwanese singer A-Lin, which boasted full capacity in the 12,000-seat Singapore Indoor Stadium. “Moving forward, there is strong pent-up regional demand for live physical concerts as tickets for UnUsUaL’s upcoming Justin Bieber concert were sold out within hours.”
With a robust pipeline of popular artistes, such as Eric Chou, set to perform in FY2023, we reckon that the concert segment would return to profitability in FY2023, reversing past two years of losses.
Financing
To fund a post-Covid-19 recovery, mm2 Asia raised $19.5 million via a placement to private investors Sam Goi and Oei Hong Leong, which may lead to new opportunities for the group given the extensive business networks the two prominent investors have.
mm2 Asia is also exploring ongoing options to restructure its debt, including an IPO or divestment of its wholly-owned cinema business, with roughly $153 million of debt set to mature by end-FY2023.
Assuming mm2 Asia sells more than 50% of its Cathay cinema business at the same $230 million valuation it paid for in November 2017, a spinoff listing could significantly pare down and restructure mm2 Asia’s debt as the remaining debt post-reduction would be then tagged to Cathay once it becomes an associate company.
UOB Kay Hian analysts have cut earnings by $4 million and $6 million for FY2023 and FY2024 respectively, on the back of lower gross profit margin assumptions driven by higher operating costs.