On 23 September 2020, the government announced that from Oct 1, large cinema halls with more than 300 seats will be allowed to admit up to 150 patrons in three zones of 50 patrons each.
On the other hand, smaller cinema halls will also be allowed to increase their capacity to 50 per cent of their original operating capacity or maintain the current limit of up to 50 patrons per hall, subject to safe management measures.
For Cathay Cineplexes’ parent company – MM2 Asia, it would have breathed a sigh of relief that the worst is probably over as they can welcome more customers.
But that being said, the Cathay cinema is just 1 division of MM2 Asia as the latter owns many more integrated businesses across the content, immersive media, event and concert industries across Asia.
Mm2 Asia Profile
mm2 Asia is a leading producer of films and TV/online content in Asia. As a producer, mm2 provides services over the entire film-making process – from financing and production to marketing and distribution, and thus has diversified revenue streams.
The Group’s primary business activities are:
- Core Business – Content Production, Distribution and Sponsorship
- Post-Production and Content Production
- Cinema Operations
- Event Production and Concert Promotion
The group of companies under mm2 include concert organizer UnUsUaL, cinema operator Cathay Cineplexes, immersive content producer Vividthree and content portal Asiaone.
By now, we would have known that mm2 is facing a dearth in revenue as everything comes to a near standstill during the pandemic.
Let’s take a quick look at its FY2020 revenue. Investors need to take note that the Financial Year 2020 ends 31 March 2020. Hence, the real impact of the lockdown in Singapore during May to August is not reflected in mm2 Asia yet.
FY2020 Revenue Breakdown
Sourced from mm2 corporate presentation
To shed more light on this, we took a look at its total revenue breakdown by segments. As seen from the above, its Core Production Business and Cinema segments are suffering from the dip in revenue while UnUsUaL Group reported a 9.8% yoy increase to S$61.7 million.
Given that the 3 segments are the main pillars of mm2 – constituting of a total 96% for its FY2020 revenue. With that, we will touch on these 3 pillars and how they are performing thus far.
(i) Core Production
Mm2’s core business is on content production, distribution and sponsorship. One big part of it is movie productions.
On that front, if you head over to their website – mm2entertainment.com, you will find many Asian-focused movies. Apart from their flagship ‘Ah Boys to Men’ movie series in the past, a few other notable ones include:
- I WeirDO (Taiwan romantic movie)
- Vanguard (starring Jackie Chan)
- The White Storm 2 Drug Lords (starring Andy Lau and Louis Koo)
- Big Brother (starring Donnie Yen)
According to Mm2’s presentation, it has a strong pipeline of movies slated for release and the productions are spread across markets as well (so not only Singapore). On top of movie production, there’s growing B2B demand and increased government projects too.
Next up, the Cinema segment is one which possess a significant presence in Malaysia and Singapore.
Due to the Group’s acquisition of assets from Cathay Cineplexes Malaysia, Lotus Fivestar Cinemas and Mega Cinemas, the Group operates mmCineplexes, the Group’s cinema brand, with 133 screens across 18 locations in Malaysia.
Whereas in Singapore, the Group operates 64 screens across 8 locations under the brand “Cathay Cineplexes Pte. Ltd.”.
Mm2 investors would be glad that the Singapore government has allowed for cinema halls to increase their capacity from Oct 1 onwards and the Malaysian side has already re-opened cinemas from 1st July.
Based on my quick assumption, there would be strong pent up demand from movie-goers due to everyone being locked down in their own countries. Hence, this segment should be pretty insulated going forward provided that the Cinema halls can return to full capacity again.
(iii) UnUsUaL Group
For a quick background, UnUsUaL Group is an big scale event/concert organizer. The company provides services in staging, Sound Light and Visual (SLV) for an event and a concert.
Although UnUsUaL may be the last to go back to norm in this pandemic, there are several impending catalysts. A couple of silver linings are that live concerts are already on-going in Taiwan and shows are moving online such as BTS’s live concert ‘Bang Bang Con’.
You can also read more about it here. To add on, UnUsUaL has an asset-light and relationship-based business model. This allows the firm to be in a good position to swerve through this prolonged crisis.
Valuation and Outlook
The current unprecendented situation warrants a look at its past EPS numbers during the glory days.
As we can see, mm2’s average EPS is around S$0.016. Based on the share price of S$0.173, the P/E ratio will be 10.8x upon full recovery.
And assuming we tag a 15x P/E ratio, the expected share price will become S$0.24 or around 38.7% potential upside although it hinges a lot on the reopening of the economy in time to come.
For the company’s outlook, I took an excerpt from their latest FY2020 results:
Recognising the increasing demand for Asian content, the Group’s strategy remains focused on North Asia. With strong presence and proven track records, the Group will continue to produce more projects in these markets.
In addition, the increasing number of platform providers has resulted in an increase in demand for quality content. The Group will continue to strengthen its content creation capabilities to cater to these platform players, both broadcast networks and streaming service providers (OTT), based on a B2B business model.
The Group foresees a pent-up demand for out-of-home and live entertainment after Covid-19 lockdowns ease. This coincides with its original pipeline with most shows planned for the second half of the financial year.
The magic and draw of the movie-going experience is unparalleled and the Group remains optimistic about the cinema business over the longer term.
Executive Chairman of mm2 Asia, Mr Melvin Ang also shared that their “core content business and other investments are on track, particularly in the North Asia markets and some new markets in South-east Asia”.
Final Thoughts: Recovery will take time
As at 31 Mar 20, mm2 also recorded S$127.1 million of short-term borrowings and S$23.0 million of lease liabilities on the balance sheet. The short-term borrowings include a S$47.4m convertible note issued to fund the acquisition of Cathay Cineplexes in 2017. With that, mm2’s net debt to equity came up to the relatively high side of 1.44x.
In addition, mm2 has to redeem the S$50 million bonds – S$50m MMASIA 7.000% 27Apr2021 Corp (SGD) in April 2021. With a cash position of S$29.4m, mm2 has to think of ways to plug the gap within 6 months time. The economy reopening can be a saving grace for mm2 to renew their debts as they maneuver past the tight liquidity situation next year.
All in all, the uncertainty surrounding COVID-19 has caused significant impact to the entertainment industry because it literally thrives with huge crowds be it concerts/movies/events.
The immediate thing for mm2 is probably to rectify the refinancing risk and ‘survive’ through the resurgence of virus cases and await for the vaccine for things to return to normalcy soon.