• UnUsUaL (SGX:1D1) reported a weaker-than-expected 3QFY20 (Mar), with PATMI and revenue up 15.4% and 66.4% y-o-y. Margins were lower, mainly on reduced margins from overseas projects and higher costs – this was partially due to upfront costs being booked ahead of delayed or postponed concerts and shows.
• Tough times lie ahead for UnUsUaL due to the current COVID-19 virus outbreak, but we are still confident on the long-term viability of the business and maintain our Buy call on this counter with Target Price SGD0.35.

Higher Costs and Lower Margins From Overseas Projects Impacted 3QFY20’s Profitability

• Despite revenue surging 66.4% during this period under review, PATMI rose only 15.4% y-o-y. This was mainly due to lower margins from UnUsUaL’s overseas concerts – especially new territories it just entered like Australia – as well as higher finance and operating costs.
• Some of the deposits of the postponed shows were also paid upfront. Management expects overseas concert margins to pick up, as it builds better rapport with venue owners and partners over time.

Expanding to More Family Entertainment Titles and Targeting the US Market

• We expect UnUsUaL to secure more new concerts with renowned Cantopop artists for 2020 and well-known family entertainment shows – this is to further build on its pipeline for this year. Historically, on its family entertainment side, UnUsUaL has worked with Disney on multiple projects and presented 48 of the latter’s ice shows in South Korea and Taiwan.
• We believe UnUsUaL will continue to expand its scope with Disney to promote more of the latter’s titles in Asia, especially in 2021. We also expect the group to continue exploring tie-ups and JVs to further expand its concert business globally, especially in the West, and focus less on Asia. This is to reduce the concentration risk of the novel coronavirus – COVID-19.

A Temporary Dip, But Long-term Business Prospects Remain Intact

• All-in-all, we expect the impact of the COVID-19 virus to result in most concerts being rescheduled to 2H20. Consequently, we cut our FY20F-21F earnings by 14% and 9%.
• However, we think these setbacks are just temporary, and believe long term demand for concerts will continue to rise after the virus outbreak settles. This may represent an opportunity for investors to collect at a more attractive price level for longer-term holdings.
• Key risks include cancellation/postponement of concerts, accidents, and departure of key employees.

Source: RHB Invest Research - 14 Feb 2020