Thursday, 4 December 2014

mm2 Asia Ltd



mm2 Asia Ltd ("mm2" or the "Company") is offering 37.4m shares comprising 31m new shares and 6.4m vendor shares at $0.25 each for a Catalist listing. The IPO will close on 5 Dec at 12pm and starts trading on 9 Dec. There is no public tranche. The market cap is $51.7m based on the IPO price.

Principle Business

The Company is headquartered in Singapore and is a movie/content producer and distributor. Beside income from producer's fees, government grants and distribution fees, the Company can also earn products endorsement fee (which you can blatantly see in movies such as Transformers and Ironman).


Since inception, the Company has produced or co-produced and/or distributed 20 movies and i am sure many of us in Singapore has watched the above 2 movies co-produced with Jack Neo entitled "Ah Boys to Men". I believe the next movie from Ah Boys to Men 3 - Frogmen will continue to be a hit. The Company has also announced its pipeline on TV last few days such as SG50 project and "3688" produced by Royston Tan who achieved fame through the movie "881". The pipeline seemed to be quite full all the way till FY2016.

Financial Highlights




While it is good to see a nice uptrend in terms of revenue and net profit, the Company started from a low base. Q1 2015 is off to a good start with net profit reaching $1.85m versus a loss in the prior quarter. Frankly, i do not know how to forecast the revenue and profit as they are very projects based. Each movie is a project and whether you can make money or not is a big unknown, otherwise, we would have the "movie flops". Given the Q1 profit is already 67% of FY2014 profit, i will hazard a guess that FY2015 will likely be a good year for the Company.

To be "conservative", i will use FY2014 fully diluted EPS x 2 as the projected EPS for FY2015. That translate into a fully diluted EPS of around 2.66 Singapore cents, implying a PER of around 9.4x.

Shareholders



Melvin will continue to own 63% of the Company post IPO and some of the pre-ipo investors included producers like Jack Neo! The pre-IPO investors came in at around ~16 cents.

What i like about the Company
  • The Company will be the first local content producer to list on SGX (after foreign owned Spackman). Please support local produce :-P
  • Retail investors will likely be more familiar with Ah Boys to Men than some foreign films and identify with the Company better
  • The Company seemed to have a healthy pipeline of projects for FY2015 and FY2016.
  • The Company is expanding outside Singapore. Hopefully, they can establish a strong foothold in the Chinese market.
Some of my concerns
  • Currently the Company received grants from government for locally produced movies that meet certain criteria. The government grants may not last forever.
  • The IPO is launched at high valuation in terms NAV. The NAV is approximately 7.23 cents versus the IPO price of 25c. However, in terms of PER, while the historical PER is high at more than 16x, the forward PER is likely to be more reasonable at around 9-10x (I am guessing).
  • The key founder, Melvin Ang, is selling some vendor shares at IPO. While I don't like to see that, it is still "not wrong" as that is his only way to monetize and he will still own a substantial chunk post IPO. 
  • The movie production scenes in Singapore is on the whole improving but still quite far off from making blockbuster movies. There are probably a few known names to collaborate with and some may not want to work with mm2. 
  • Our local producers have been very successful in winning Cannes Films awards but I would rather they produce a blockbuster movie anytime to bring our industry up a notch globally. 
  • We have a very small market. Even the movie from boys to men part I and II couldn't gross above $10m each. The only way for the Company to succeed is to co-produce or distribute movies that will sell like hot cakes in China. As such, the Company needs to execute well in its China strategy.
  • Making movies is a "binary option". The chance of producing a flop is high. So the company will have to pick their "producers" carefully. 
Mr IPO's rating

To be honest, i don't really know how to rate the Company. The Company is like a start up company. While movie productions can be a risky business, it can also be a lucrative business if the Company is able to produce a blockbuster movie, especially in China. As such, a lot will depend on how the Company mitigate its risk in each movie production and whether it can come up with exciting titles which the audience wants.

I will give it a 1 chilli rating. Since there are no public tranche, the rating is purely for information. Mr. IPO took up 10 lots in support for our local movie industry. 881 Ah...

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