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Can MM2 Asia Ltd Convert Movie-Making Magic Into Profits?

Going to the cinema to catch a film is a time for us to unwind and relax. Therefore, it’s easy to think that the cinema might not be the best place to spot a possible investment opportunity.

But for those of you who have recently caught the locally-made film Ah Boys To Men 3 – a comedy-drama about the trials and tribulations of one of Singapore’s elite military units, the Naval Divers – you would actually have caught a new potential-investment opportunity in action.

As it turns out, Ah Boys To Men 3 came from MM2 Asia Ltd (SGX: 41C), a local movie production company that was listed on the Catalist board only back in late 2014.

As this is the first local movie production company listed in Singapore, most investors might not be familiar with such a business.

Behind the scenes with MM2 Asia

According to MM2 Asia’s IPO (initial public offering) prospectus, its revenue stream comes from three main sources:  Production, Distribution, and Sponsorship.

Production is where the company earns fees from selling part of its share or revenue rights from a movie to other stakeholders. In addition, Production is also where MM2 Asia generates income through the provision of services like script development, appointment of crew and cast, project management, and consultancy.

Under Distribution, MM2 Asia is responsible for getting a film (either produced/co-produced by the company or third parties) out to the public through various platforms like cinemas, Pay-TV channels, and airlines etc. MM2 Asia will also receive Distribution-related fees from licensing its script rights as well as adaptation and sequel rights to its library of movies.

The last main revenue source is Sponsorship and this is where MM2 Asia gets advertising fees from advertisers who want to promote their products and services in the company’s films. (Those of you watched Ah Boys To Men 3 may have noticed some obvious product placements!)

In the financial year ended 31 March 2014 (FY2014), Production, Distribution, and Sponsorship accounted for 40%, 40%, and 17% of MM2 Asia’s total revenue of S$16.1 million.

Movie magic

According to MM2 Asia’s prospectus, the company’s creative movie-making juices have been successfully converted into a profit-making enterprise. From FY2012 to FY2014, the firm’s revenue and profit have grown at impressive compounded annual rates of 56.6% and 2oo% respectively.

Sometimes, knowledge about new industries and businesses can come from the most unexpected sources.

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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 writer Stanley Lim does not own any companies mentioned above.