What Investors Need to Know About Spackman Entertainment Group’s Upcoming Initial Public Offering

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It seems that we are in a frenzy over initial public offerings (IPO). Last Thursday, Starburst Holdings (SGX: 40D), a firm that designs and engineers defence training facilities, made its debut. Four days later, Frasers Hospitality Trust (SGX: ACV), whose sponsor is Frasers Centrepoint (SGX: TQ5), went public. Now, the Catalist exchange is ready to welcome a new kid on the block, Spackman Entertainment Group.

Spackman Entertainment is one of Korea’s leading theatrical film production groups. It mainly produces, presents, and invests in theatrical films. Once it debuts on 22 July 2014 in the Catalist exchange, it will be the first Korean entertainment company to be listed in our shores.

Zip Cinema and Opus Pictures, wholly-owned film production subsidiaries of Spackman, are two of the most recognised film production labels in Korea. Between them, they have produced and released a total of 16 films. Zip Cinema has made films such as Cold Eyes and All About My Wife. The two films were among the top 10 grossing movies in Korea in 2012 and 2013 respectively. Meanwhile, Opus Pictures is the brainchild behind films like Snowpiercer and Confession. In particular, Snowpiecer was Korea’s number three film in 2013 in terms of box office ticket admissions.

Other than the production houses, Spackman Entertainment has complimentary businesses such as a talent management agency, a marketing and media company, an investment in a Korean girl pop group called W, a café-lounge business, and a documentary film business.

The IPO is by way of placement, without any stock being issued to the public. There will be 69.4 million shares offered at S$0.26 each. This will value Spackman Entertainment at around S$103 million in total.

In 2013 (the company’s financial year coincides with the calendar year), Spackman Entertainment earned revenue of US$11.9 million, a significant increase from US$4.4 million a year ago. The jump in top-line also filtered to the bottom-line with the company’s net profit coming in at US$2.6 million in 2013 as compared to a net loss of US$320,500 in 2012. In 2013, Spackman Entertainment’s earnings per share (EPS) stood at 0.78 US cents.

The firm had bank borrowings and convertible bonds totalling US$2.6 million as of 31 December 2013. That gives the company a debt-to-equity ratio of 1.87, which seems a tad high. However, it was an improvement from the ratio of 2.36 seen in 2012.

Some of the risks that Spackman Entertainment revealed about its business in its listing prospectus include the unpredictability of the commercial successes of the films it produces. The company also talked about the competitiveness of the film industry, which can create an oversupply of films. Piracy of intellectual property is also a concern as it may reduce gross receipts for the company’s films in cinemas.

Going forward, Spackman Entertainment intends to use the net proceeds of about $10.8 million from the IPO to increase its investment into films, expand its operations via acquisitions, joint ventures and investments, and establish offices in Los Angeles and Singapore. It also has plans to scale its business over time by increasing the number of films developed and produced to at least four films per year in 2016 and beyond.

With a share price of S$0.26 and an EPS of 0.98 Singapore cents (0.78 US cents), the historical PE ratio for the company comes up to 26.5. In contrast, the broader market, as represented by the Straits Times Index (SGX: ^STI), is trading at 14 times its historical earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.