FY19 Core Profit Below. Maintain HOLD on Lower Target Price

• With MM2 ASIA LTD. (SGX:1B0)'s FY19 reported profit propped by an unexpected SGD4m gain, core profit at SGD18m (-19% y-o-y) was 84% of MKE/consensus estimates.
• With a 16%-23% cut in our FY20-22E revenue outlook our core profit forecasts are reduced by 46%-48% and our 1x PEG based Target Price is lowered to SGD0.26.
• Maintain HOLD where core production and cinema performance business are key upside and downside risks to our outlook.

The Bad News: Revenue Shortfall

• The 5% shortfall vs MKE revenue forecasts came from y-o-y drops in Singapore and Malaysia’s core production revenues which partially offset gains in North Asia. Combined with the higher finance expenses, that included non-cash, exceptional items; this led to the underperformance in core profit.

The Good News: Better Transparency and Guidance

• Management delivered on its promise to provide business segment transparency for FY19 vs FY18 results (see Fig7 in attached PDF report) that showcased improved EBITDA margins for the cinema business.
• The progress and path to enhancing the cinema business was also discussed thoroughly in its results briefing. Furthermore, for the first time management revealed its 18-month core production pipeline (see Fig6 in attached PDF report) which shows SGD162m worth of contracts secured.
• Event and concert subsidiary UNUSUAL LIMITED (SGX:1D1) recently unveiled the launch of its new family entertainment line-up of shows for CY19. As such, we believe our revised revenue outlook (CAGR of 6% over FY19-22E) is attainable.

What the Market Would Like to See

• We believe the key to further re-rating of the stock will have to come from discernible progress in the cinema EBITDA and margins and new regional production work for the core business. This would entail similar levels of disclosure on a quarterly basis and not just year-end.
• Any opportunities to execute on the strategic sell down of the cinema business would also be a share price catalyst.

Source: Maybank Kim Eng Research - 3 Jun 2019