Excerpts from analyst's report

Maybank Kim Eng analyst: Simeon Ang

Budding media entertainment company
mm2 Asia is a service provider in the USD14.1b Asian film industry. Its expertise lies in the production and distribution of films in Singapore, and Malaysia.

Group has been looking to establish an expanded foothold in the Greater China region through strategic working relationships in China, Hong Kong, and Taiwan. At the same time, management is undertaking M&As to transform the company into a more holistic media entertainment group.

with non-speculative revenue streams…
Production accounted for 57% of FY16 revenue with producer fees forming the bulk of the business arm’s contributions. These fees are almost guaranteed to be received once film production goes ahead. Hence, potential losses stemming from poor box office receipts are substantially, if not, completely mitigated.

Average producer fees per film amounts to about SGD1.5m with Chinese films generally offering higher fees. Management shared that it expects to produce about 20 films in FY17 (FY16: 14).

♦ Becoming holistic entertainment group
SimeonAng6.16"In a short span of only five months, its two newly acquired Malaysian cineplexes generated maiden revenue contributions of SGD4.9m, accounting for about 13% of its total FY16 revenue mix. With the addition of another three cinemas in Malaysia this year, this business arm is expected to be a key growth driver in the quarters to come."

-- Simeon Ang (photo)

Filling a SGD17m funding gap
With only SGD4.7m in cash reserves and SGD4.8m in unutilised Orientivity proceeds, mm2 will need to raise more funds to fuel its ambitions and plug a ~SGD17m funding gap for its recent acquisitions.

In light of its track record and current debt burden (8.2% of equity), still considered light by industry standards (11%), mm2 could seek funding through a combination of debt (higher interest costs), equity through private placements (dilution) as well as a possible UnUsUaL stake sale.

Current valuations foretell growth prospects

Stock price  67 cents
52-week range 22.3 - 71 cents
PE (ttm) 55.3
Market cap S$341.4 million
Shares outstanding 502.1 million
Dividend yield
Source: Bloomberg  

Based on consensus estimates, mm2 is trading at a 9% discount to its peers despite its growth profile which is backed by an ROE of 30%.

mm2 is also one of a handful of profitable publicly-listed film producers and should see earnings scale up quickly if the company is able to establish a foothold in new markets.

Note: The street has 2 Buy calls (75 cents  target price by DBS and 74 cents by UOB KH) and 1 Hold call (73 cents target price by CIMB) on the counter.

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