Mixed Quarter. HOLD

• Although 1Q is a seasonally softer revenue quarter for mm2 Asia (SGX:1B0), event/concert division was unusually slower. Lower gross profit margins (62% vs 67% a year ago) exacerbated this further.
• We assume revenue catch up in later quarters and maintain revenue forecasts but increase production cost assumptions leading to -2%/-9% in FY20E/21E core profit forecasts.
• Our 1x PEG based Target Price on a revised 13% (from 16% previously) core profit CAGR over FY19-22E is consequently lowered by 27% to SGD0.20.
• Maintain HOLD where core production and cinema performance business are key drivers of our outlook.

Seasonally Soft Quarter Held Back Further

• mm2 Asia's 1QFY20 revenues at SGD49.0m (-37% q-o-q; +0.1% y-o-y) were held back by subsidiary UnUsUaL (SGX:1D1) investing time and effort to develop 2HFY20 projects and revenues.
• The core movie/TV production and cinema businesses were up on an undisclosed individual basis but were up SGD1.6m on a combined y-o-y basis. 1QFY19 represented 18% of revenues and 39% of FY19 revenues and core profits.
• 1QFY20 was 17%/15% and 36%/24% of MKE/consensus revenues and core profit forecasts – below expectations.

The Revenue Line Appears Intact

• Management indicated that the core movie/TV production business had 80 projects at end 1QFY20 against 46 at end FY19. The cinema business has benefited from recent Hollywood blockbusters while keeping costs flat y-o-y with the next batch of potential big films to be shown in 2HFY20.
• UnUsUaL indicated that a significant number of high value concerts and events are also expected in 2HFY20. Although the aim is to go for higher value productions we forecast these will also involve higher project costs.

Back to the Beginning

• After a detailed breakdown of revenues by segment and geography in 4QFY19 results (see report: mm2 Asia - Maybank Kim Eng 2019-06-03: Road To Redemption?), disclosure has reverted back to being less transparent.
• We continue to opine that such visibility would aid the market in evaluating the progress of its major business segments. This is particularly pertinent given management reasserted its plans to separately list the cinema business in FY21.

Source: Maybank Kim Eng Research - 19 Aug 2019