mm2 Asia

mm2 Asia's FY16 net profit spiked 61% to $8.2m, above street forecasts for $7.5m.

Revenue surged 58% to $38.3m, boosted by the consolidation of its newly acquired businesses in 3D animation and cinemas.

A breakdown of its segments are as follows:

Core production and distribution - Revenue: $29.8m (+23%), gross profit: $13m (+36.2%)
Continued strong growth particularly on a stronger pipeline as well as growth in key markets such as Singapore (+9.6%), China (+302%), and Taiwan (+104%). This was partially offset by contraction in its Malaysian (-25.3%) and Hong Kong (-19.4%) markets. Gross margin at 44% (+5ppt).

Post-production - Revenue: $3.6m, gross profit: $2.5m
Maiden contribution from recently acquired 51% stake in Vividthree Production, specialises in 3D animation as well as visual effects for feature films and commercials. Gross margin at 69%.

Cinema operations - Revenue: $4.9m, gross profit: 2.8m
Five-month contribution from recently acquired cinema operations following the completion of acquisition in Nov '15. The assets are in Malaysia and comprise a total of thirty screens and ~5,000 seats. Gross margin stood at 58%.

As a result of the better profitability of the two new businesses, overall gross margin fattened to 48% (+9ppt).

Going forward, management intends to expand its foothold into the Greater China region (Hong Kong, Taiwan, and China), which now accounts for ~27% of overall sales (FY15: 14%).

On its M&A spree, mm2 anticipates to complete the acquisition of three cinemas in Malaysia in 1H17, as well as a 51% stake in concert organiser UnUsUal in FY17.

However, we note that the remaining payment for both the acquisitions amount to ~$23.4m, compared to its cash stack of $4.7m, which means further fundraising is required.

Valuations for the counter is not cheap, currently trading at 34.1x forward P/E. Notwithstanding this, the street is still bullish on the counter with 2 Buy ratings and a TP of $0.66.