Listed in 2016, MM2 Asia Ltd (SGX: 1B0) has businesses in content production and distribution, post-production, cinema operations, and event and concert promotions. The group offers post and content production services through its 42% stake in Vividthree Holdings Ltd (SGX: OMK). MM2 also organises events and concerts through its 39% stake in UnUsUaL Limited (SGX: 1D1). In 2017, it also acquired Cathay Cineplexes, expanding its cinema business in Singapore.
In the last three years, MM2 Asia managed to triple its revenue, through strategic acquisitions and organic growth. With that in mind, here are key things to know about its financial track record, growth prospects and valuation.
Higher revenue but profit down…
2019 marked the first full-year contribution from Cathay Cineplexes. Consequently, revenue for the year increased by 38%, but earnings per share slipped 17% to 1.65 Singapore cents.
The lower earnings per share was due to higher administrative expenses, finance expenses, income tax expenses, and higher proportion of profits to minority interests (due to lower stakes in Vividthree and UnUsUal after their respective listings).
The chart below shows the revenue breakdown by business segment over the last three years.
Source: MM2 Asia Ltd 2019 Annual Report
Visible stream of revenue
MM2 entered into slate deals to co-produce high-quality digital and live content with international content distributors in North Asia. Its cinema business is also likely to continue providing recurring income, albeit at a lower margin than some of its other business segments.
UnUsUal has a visible pipeline of projects for the next one to three years. For live concerts, UnUsUal has lined up various artistes in various countries. It also has family entertainment shows such as “Disney on Ice” and “Walking With Dinosaurs,” which will have 117 shows in 11 cities starting in August this year. Another show, “Apollo,” has scheduled a three-year tour in North America starting in the middle of this year.
Vividthree completed the flagship Train to Busan Virtual Reality tour set in Beijing and is set to go to Xiamen next. The sequel of Train to Busan that is expected to be released in 2020 will likely keep the momentum for the extremely popular Train to Busan franchise. All of this should provide MM2 with a visible revenue stream in the next 12 months to 36 months.
Reasonable valuations but…
At its current price of S$0.24 per share, MM2 has a trailing price-to-earnings multiple of 14.5 and a price-to-book ratio of 1.85, which looks reasonable. However, investors need to note that MM2’s financial position has weakened dramatically since it purchased Cathay Cineplexes for S$230 million.
As of 31 March 2019, the group had just S$18.5 million in cash and S$155.4 million in debt. That puts it in a precarious position, with a net debt-to-asset ratio of 0.8. Investors will need to keep a close eye on its financial health in 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 contributor Jeremy Chia doesn’t own shares in any companies mentioned