Mm2Asia

Mm2Asia: UOBKH initiates coverage with Buy and TP $1.01.

Mm2Asia has a unique and prudent business model, as it is able to generate revenue across the entire filmmaking process. Unlike traditional film makers, mm2 does not actively become a stakeholder in their productions due to the uncertainty and poor visibility in box office receipts; instead, they adopt a more prudent and cautious approach to revenue generation by extracting different fees from producing and distributing the movie.

Also, they get substantial grants and government support. Asian film authorities provide subsidies to nurture support and promote local filmmaking. These can account for up to 40% of qualifying expenditure.

The majority of mm2’s revenue is derived from both the number of movies produced and the budget of each movie. In FY15, mm2 produced a total of nine movies. UOBKH expects mm2 to double that for FY16 and produce a total of 18 movies. Furthermore, mm2 is actively looking to expand into the North Asian market where the movie budget is larger and the audience base much wider. Film investors will typically receive net receipts for a period of 3-8 years, after which mm2 retains the rights of the IP and also to subsequent sequels. Currently, mm2 has a library of over 30 movies.

On its expansion plans, MM2 has acquired assets across the value-chain, including a 51% stake in 3D animation company VividThree, cinemas in Malaysia, and an agreement to acquire a digital media company Millinillion.

The house likes mm2Asia’s lower risk profile. mm2 is currently trading at 15x FY17F PE, a discount of 35.6%
to regional peers’ average FY17F PE of 20.3x