MM2 Asia Ltd (SGX: 1B0) is a SGX-listed entertainment company which derives income from four key businesses. They include:
a. Content Production, Distribution, and Sponsorships (Content)
b. Post & Content Production under Vividthree Holdings Ltd (Vividthree).
c. Cinemas under two brands: Cathay Cineplexes and mmCineplexes (Cinema)
d. Concert & Events under UnUsUaL Ltd (UnUsUaL).
As of 30 December 2019, mm2 Asia’s market capitalisation is worth as much as S$ 348.8 million. Here, I’ll cover on the developments for each business, recent financial results, and valuation figures. Hence, here are 10 main things to know about mm2 Asia before you invest:
- Business 1: Content
This division has three different sources of income:
This division has achieved exponential growth in both revenues and net profits since its listing in 2014. Revenues increased from S$ 24.3 million in 2015 to S$ 98.2 million in 2019. Its net profits had increased from S$ 5.1 million in 2015 to S$ 22.3 million in 2019.
In addition to local content production, this division has achieved a rise in sales from co-production of high-quality content with partners based in North Asia namely, Mainland China, Taiwan, and Hong Kong.
- Business 2: Vividthree
Vividthree is a 41.53%-owned subsidiary of mm2 Asia Ltd, which is now involved in immersive digital content production, specialising in Virtual Reality (VR), visual effects, and computer-generated imageries in its key markets in Singapore, Malaysia and China. After incurring a loss in 2017 of S$ 79 thousand, Vividthree has contributed S$ 3 million in net profits in 2018 and 2019.
- Business 3: Cinema
Since its IPO listing, mm2 Asia has acquired the following cinemas:
Hence, the cinema division had reported substantial growth in sales, up from S$ 4.9 million in 2016 to S$ 100.7 million in 2019. After losses in 2 years, it has contributed S$ 1.9 million in net profits in 2019, hence, is a small income contributor to mm2 Asia presently.
- Business 4: UnUsual
UnUsUaL Ltd is a 51%-owned subsidiary of mm2 Asia Ltd, which derives income from staging large-scale events and concerts across Asia.
It has achieved both growth in revenues and net profits as follows:
- Group Financial Results
Overall, mm2 Asia had achieved rapid growth in group revenues and its shareholders’ earnings over the last 5 years. Revenues had increased to S$ 266.2 million in 2019, up from S$ 24.3 million in 2015. Shareholders’ earnings had increased from S$ 6.6 million in 2015 to S$ 22.4 million in 2018 before dipping to S$ 19.1 million in 2019.
Its sales growth was attributed to growth achieved by all of its divisions during the 5-year period. This has contributed to profit growth with the only exception in 2019 due to incurring higher administrative expenses arising from its efforts in expanding Vividthree and higher finance cost.
- Latest 12-Month Financial Results
For the last 12 months, mm2 Asia had made S$ 269.7 million in sales. It has generated S$ 17.3 million in shareholders’ earnings or 1.49 cents in earnings per share (EPS).
- Balance Sheet Strength
In Q2 2020, mm2 Asia has net debt of S$ 351.7 million and total capital of S$ 631.0 million. Hence, its gearing ratio is 55.7%, slightly lower than 61% in FY 2019.
The formula is as follows:
= Borrowings + Trade & Other Payables – Cash and Bank Balances
= S$ 260.9 million + S$ 109.3 million – S$ 18.6 million
= S$ 351.7 million
= Total Equity + Net Debt
= S$ 279.3 million + S$ 351.7 million
= S$ 631.0 million
- Growth Prospects
mm2 Asia would be focusing on three focus areas for growth:
- P/E Ratio
As of 30 December 2019, mm2 Asia is trading at S$ 0.30 a share. Based on its recent 12-month EPS of 1.49 cents, mm2 Asia’s current P/E Ratio is 20.13, the lowest since 2015.
- P/B Ratio
In Q2 2020, mm2 Asia has net assets of 19.0 cents per share. Hence, its current P/B Ratio is 1.58, the lowest since 2015.
- Dividend Yields
Since its IPO listing, mm2 Asia did not declare any dividends to existing shareholders.
So, is this a good time to invest in mm2 Asia at S$ 0.30 a share?
On the positive note, mm2 Asia had invested and delivered rapid increments in revenues and earnings since its IPO listings. Its stock price has been revalued to P/E Ratio and P/B Ratio of 20.13 and 1.58 presently down from as high as 37.14 and 8.35 respectively.
The thing to take note here is mm2 Asia is not suitable for investors who desire to invest for dividend income for it paid nothing for the last 5 years.
So mm2 Asia could be an opportunity for growth investors but might not be so attractive for investors looking for some income.