Media content producer and cinema operator mm2 Asia is positioned to accelerate out of the downturn, write UOB Kay Hian Research analysts Llelleythan Tan and John Cheong.
“We believe mm2’s earnings will experience an upward trend in FY2023 ending March 2023, driven by all three business segments: cinema attendance is expected to rise as Singapore’s and Malaysia’s cinemas operate at full capacities, resumption of in-person concerts and ramping up of film production,” add the analysts.
In an Oct 13 note, Tan and Cheong maintain their “buy” call with a lower target price of 9.8 cents from 11.5 cents previously.
Tan and Cheong point to a steady rise in cinema attendance. “Cinema audience numbers are expected to rebound to close to pre-pandemic levels given the removal of capacity restrictions for cinemas during the year.”
As of Oct 10, Singapore’s authorities have lifted all Covid-19 vaccination-differentiated safe management measures (VDS), stimulating the economic viability of the entertainment industry, add the analysts.
In accordance with the last phase of Malaysia’s National Recovery Plan, cinemas are now open to fully-vaccinated individuals, which make up 85% of Malaysia’s population.
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With the expected return of movie-goers and increased consumer spending on food and beverage in cinemas, FY2023 revenue and operating profit from its cinemas operations is likely to increase, say Tan and Cheong.
Likewise, live concerts will provide a boost to mm2 Asia’s concert production arm UnUsUaL Entertainment. “With the relaxation of Covid-19 restrictions in April, live concerts have since resumed in 1HFY2023. To date, UnUsUaL has co-produced four concerts in Singapore for renowned singers A-Lin, 831 and Eric Chou, and is set to co-produce six concerts in both Singapore and Malaysia for notable acts like JJ Lin and Westlife in 2HFY2023.”
Tickets for Westlife’s concert on Feb 16, 2023 were sold out almost immediately, leading to a recent announcement for an additional show on the following day. This indicates pent-up demand for live concerts, say Tan and Cheong. “We therefore expect FY2023 ebitda from this segment to return to profitability.”
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Meanwhile, mm2 Asia’s core production business is gaining momentum, say the analysts. “mm2 is slated to increase production for release over the coming year with multiple projects in the pipeline. This is partly due to the relaxation of most travel restrictions, allowing for more cross-border collaborations.”
Tan and Cheong expect FY2023 revenue and EBITDA from the core business to grow by 44.1% y-o-y and 20.0% y-o-y respectively.
Market trends upward
As its peers are seeing positive growth in revenue, Tan and Cheong expect mm2’s FY2023 financial results to follow suit.
“An upward trend is observed in IMAX Corporation’s earnings, which they have mainly attributed to blockbuster releases. As for the domestic market, Orange Sky Golden Harvest Entertainment, the sole owner of Golden Village cinemas in Singapore, has also seen an 84% increase in net box office receipts from $16 million in 1HFY2021 ended June to $30 million in 1HFY2022 alone,” write the analysts.
Based on its peers’ improvement in total revenue and ebitda over the year, mm2 is likely to see a similar pattern in its financials, they add.
As at 1.22pm, shares in mm2 Asia are trading flat at 4.2 cents.
