FY22: Growing Immunity To COVID-19, Recovery On Track
mm2 Asia reported headline PATMI loss of S$35.8m in FY22, narrowing from its
S$90.8m loss from FY21. FY22 revenue grew 50.2% yoy as the group’s business
operations recovered. 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/divestment of its Cathay cinema business. Maintain BUY. Target price:
S$0.115.
RESULTS
• PATMI loss narrowed as Singapore reopens. mm2 Asia (mm2) reported FY22 revenue
and PATMI loss of S$113.0m and S$35.5m respectively, below our FY22 revenue
expectations of S$130.8m and S$5.9m PATMI loss. However, excluding goodwill
impairments of around S$15.5m, FY22 core PATMI loss would have been around S$20.0m,
a sharp improvement from the S$50.8m core PATMI loss in FY21. For 2HFY22, revenue
(+20.6% yoy) and PATMI loss (+61.7% yoy) improved sharply as Singapore and Malaysia
started to partially relax their COVID-19 restrictions.
• Main beneficiary as COVID-19 becomes endemic. mm2’s sharp rebound was largely
boosted by strong contribution from the cinema business as COVID-19 restrictions were fully
relaxed in Apr 22. 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
COVID-19 restrictions and international borders reopening, the group’s regional core
production business have started to ramp up as demand starts to pick up. Moving forward,
upcoming concerts in Singapore are expected to aid in mm2’s recovery due to strong pentup demand for live concerts.
STOCK IMPACT
• Core business: Rebound Underway. For FY22, revenue from the core production
business grew 39.1% yoy, beating our previous expectations of 37.4% yoy growth. However,
EBIDTA fell by 14.4% yoy, missing our expectations of a 15.9% yoy growth. We reckon this
was due to higher operating and manpower costs arising from operating under COVID-19
restrictions. As more countries start to further relax COVID-19 restrictions and reopen their
respective international borders, growing regional demand is expected to underpin a strong
recovery for this segment. Over the next 2-3 years, mm2’s core production pipeline remains
sizeable at S$150m-190m. 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 is set to distribute Ah Girls Go Army 2 on 16 Jun 22, which is expected to
perform well domestically. 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.
• Cinema: Reached inflection point. Revenue and EBITDA for the segment saw a sharp
rebound in FY22, with revenue up 83.7% yoy and reversing an S$0.7m loss EBITDA in FY21
to S$20.0m EBITDA profit. This was largely supported by larger operating capacity as
Singapore and Malaysia relaxed social distancing measures. Furthermore, robust ticket
sales for major Hollywood titles such as Spiderman: No Way Home also boosted revenue in
2HFY22. With upcoming highly anticipated films such as Thor: Love and Thunder, Black
Panther: Wakanda Forever, and Avatar 2 that will be shown throughout FY23, we expect
revenue and profitability for the cinema segment to reach near pre-pandemic levels in FY23.
• Concerts: Sold out within hours. As Singapore only fully relaxed COVID-19 restrictions in
Apr 22, physical concerts were still on pause for 2HFY22. UnUsUaL Entertainment’s
(UnUsUaL) held its first live major concert on 28 May 22 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 FY23, we reckon that the concert segment would
return to profitability in FY23, reversing past two years of losses.
• Fund raising and debt restructuring. To fund a post-COVID-19 recovery, mm2 raised
S$19.5m 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 is also exploring ongoing options to restructure its debt, including an
IPO/divestment of its wholly-owned cinema business, with roughly S$153m of debt set to
mature by end-FY23. Assuming mm2 sells more than 50% of its Cathay cinema business at
the same S$230m valuation it paid for in Nov 17, a spinoff listing could significantly pare
down and restructure mm2’s debt as the remaining debt post-reduction would be then
tagged to Cathay once it becomes an associate company.
EARNINGS REVISION/RISK
• Cut earnings by S$4m and S$6m for FY23 and FY24 respectively, on the back of lower
gross profit margin assumptions driven by higher operating costs. We also introduce our
FY25 forecasts.
VALUATION/RECOMMENDATION
• Maintain BUY, with an unchanged target price of S$0.115. Our target price is based on an
SOTP valuation, with: a) core production business at 11.4x FY23F EV/EBITDA, in line with
larger peers; b) cinema business at 8.0x (7.4x previously) FY23F EV/EBITDA, in line with
larger peers; and c) Unusual (UNU SP) and Vividthree (VTH SP) at market value. We have
also incorporated a 25% conglomerate discount to account for the uncertainty facing its debt
restructuring as well as rolling over our valuation to FY23F.
SHARE PRICE CATALYST
• Film production delivery, spin-off of cinema business