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Author: simonsg   |   Latest post: Wed, 17 Aug 2022, 10:12 AM

 

MM2 Asia - FY22 Growing Immunity to COVID-19, Recovery on Track

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  • 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% y-o-y 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.
  • mm2 Asia is exploring options to refinance its maturing debt which may include an IPO/divestment of its Cathay cinema business. Maintain BUY.

MM2's FY22 Results: PATMI Loss Narrowed as Singapore Reopens

  • mm2 Asia (SGX:1B0) 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% y-o-y) and PATMI loss (+61.7% y-o-y) improved sharply as Singapore and Malaysia started to partially relax their COVID-19 restrictions.

Main Beneficiary as COVID-19 Becomes Endemic

  • mm2 Asia’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 Asia’s recovery due to strong pent-up demand for live concerts.

Core Business: Rebound Underway

  • For FY22, revenue from the core production business grew 39.1% y-o-y, beating our previous expectations of 37.4% y-o-y growth. However, EBIDTA fell by 14.4% y-o-y, missing our expectations of a 15.9% y-o-y 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 Asia’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 Asia 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 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 (SGX:1D1)’s held its first live major concert on 28 May 22 for Taiwanese Singer A-Lin, which 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 Asia raised S$19.5m via tagged to Cathay once it becomes an associate company.

Mm2 - Earnings Forecast Revision & Recommendation

  • Cut earnings by S$4m and S$6m for FY23 and FY24 respectively, on the back of lower gross restructuring as well as rolling over our valuation to FY23F.
  • Catalysts: Film production delivery, spin-off of cinema business.

Source: UOB Kay Hian Research - 10 Jun 2022

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Labels: MM2 Asia

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