PETALING JAYA: Singapore-listed Cityneon Holdings Ltd, a subsidiary of the Star Media Group Bhd, is poised to see rising profit margins driven by its cash-generating exhibition production and distribution unit, say analysts.
CIMB Research expected Cityneon’s topline growth for financial years 2016-2018 to come in between 10%-33%, and earnings per share to expand more rapidly at 35%-238% even after factoring in the company’s recent new share issuance of 20 million in FY16.
The research firm said the improvement in overall margin would stem from Victory Hill Exhibitions (VHE), which is generally a high-margin business.
“We assume a gross profit margin of 55% for permanent installations and 90% for temporary exhibits, whose earnings collection is almost 100% passed-through to bottom-line ... leading to a rising gross profit margin of 62-72% for VHE (also known as intellectual properties or IP rights segment) as sales mix changes.”
“We forecast the acquisition of VHE to contribute sales of S$20.6mil, S$53.1mil and S$62.5mil, respectively, over the period of FY16-18 as the permanent installations officially open on June 22 in Las Vegas and VHE ramps up production of travelling sets by two each year for FY16-FY18,” the research firm said in an initiation report.
CIMB Research has an “add” rating on the stock with a target price of S$0.88 pegged to a forecast FY17 price earnings ratio of 13.1x, which is 20% above peer average of 10.9x.
“We think this is fair, as it is in the early stage of multi-year earnings growth, in our view, with more upside potential and re-rating catalysts to look forward to.
“The stock also offers a FY17-FY18 forecast dividend yield of 2.9%-4%.”
Star Media Group owns 53% of Cityneon, which in turn wholly-owns VHE, the company that owns the licensing rights for both Avengers and Transformers brands in partnership with Marvel Entertainment and Hasbro.
Cityneon recently raised about S$22mil to fund its expansion plans in China, as well as increasing share liquidity. A portion of the shares that were placed out had been taken up by Chinese media giant CMC Holdings.
The company which currently has shows in Paris, will open its shows in Las Vegas for the Marvel characters soon and towards the end of the year start the Transformers show in Las Vegas.
Among the catalysts for the stock, according to CIMB Research, is the potential to secure a third IP right among the Disney universe, while the increasing popularity of such franchises in China could see greater expansion opportunities for VHE in the near-to-medium term.
Meanwhile, UOB-Kay Hian Research noted that the licensing fee for the current Avengers attraction in Paris, which is slated to run for five months, is at about S$0.7mil upfront. “According to IFRS 18, this should be recorded immediately as no further obligations exist.
“Given the length of the deal (two years) with Starclouds in China, we expect the licensing fee at S$5mil, which should be booked in FY16.”
As for Las Vegas, UOB expected each exhibit to draw an attendance of about 300,000 visitors per year with 60% adults and 40% kids, implying an average ticket price of US$30.
“We have imputed a US$5 ticket service charge on top of the average ticket price,” it said.