Is This The Next Growth Area For MM2 Asia Ltd?

MM2 Asia Ltd (SGX: 41C) has been one of the best performing initial public offerings (IPO) in 2014. Since the company’s listing on the Catalist board, shares have jumped from S$0.25 per share to S$0.75 per share, a three-bagger for investors.

Cinematic ambitions

MM2 Asia makes most of its revenue from the movie production business. However, the company may be looking into a new area of growth, namely cinemas.

From its latest announcement, MM2 Asia completed an acquisition of two cinema complexes from Cathay Cineplexes Sdn. Bhd. in Malaysia. The RM40 million acquisition enables the company to move downstream into the cinema business. From 1 November 2015, MM2 Asia will be managing two cinema complexes, located in Petaling Jaya, Selangor and Johor Bahru, Johor.

The aforementioned announcement could be a sign of things to come.

Prior to this, on 20 August 2015, MM2 Asia announced that it will be acquiring three cinema complexes in Malaysia from Mega Cinemas Management Sdn. Bhd.

Melvin Ang, MM2 Asia’s Chief Executive Officer, commented that the cinema business is a great way for the company to produce a stream of recurring income and adds to the future growth in the company.

The movie production business can be considered as a hits-based business, dependent on its ability to consistently produce popular movies. In contrast, the cinema business can be considered less volatile as it is able to screen various type of movies to attract customers.

Foolish Summary

Will the cinema business prove to be a growth engine for the company? Or does this mean that the company is trying to diversify away? Is this a sign that its movie production business as it will be seeing less blockbusters coming up in the future?

These may be the questions we may want to ask ourselves before investing.

For now, shareholders should be very happy with the company’s performance since its IPO. That said, we have to keep an eye on how MM2 Asia can sustain its business for the future.

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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.