SINGAPORE (June 14): DBS Vickers has kept its "buy" recommendation on mm2 Asia with a target price of 70 cents.
This follows the company’s acquisition of a 50% stake in Golden Village (GV) cinema business in Singapore for about $184.3 million, implying valuation of 10.5x EBITDA.
(See more: mm2 Asia to acquire Golden Village Cinema business in Singapore for $184 mil)
The acquisition of GV – one of Singapore’s leading cinema operators – will further strengthen mm2’s presence in the downstream value chain of film distribution.
In a Wednesday report, analyst Ling Lee Keng said: “As the market leader, mm2 would now have a better bargaining power in terms of securing distribution titles and screening rights. This will also complement its current cinema operations in Malaysia.”
The acquisition of GV will not only provide mm2 a source of recurring income, but can lead to cost savings as the group would typically need to pay 50% of its gross box office proceeds for cinema rental.
Ling comments that cinema operation can be profitable even with less than 30% of the seats occupied.
The proposed acquisition will be funded by a combination of bank borrowings, internal cash resources and proceeds from fund raising exercises to be undertaken by the group.
The acquisition is expected to be completed by July 21.
As at 1.35pm, shares of mm2 are trading at 1 cent lower at 61 cents.
