Will Unusual Ltd Resume Growth Trend After the COVID-19?
April 17, 2020
With the COVID-19 outbreak raging across the world, many events have been cancelled or postponed to prevent further spreading. This has undoubtedly dealt a heavy blow to Singapore’s concert and entertainment industry.
Unusual Ltd (SGX: 1D1) which specialises in staging live events and concerts is heavily affected as well.
Can Unusual survive this crisis and continue its growth trajectory?
The company was founded in 1997 operating a stage, sound, and lighting equipment business. It has grown into a leading live entertainment company synonymous with the production and promotion of large-scale shows across Asia.
Unusual listed on the Singapore Exchange Catalist Board in Apr 2017 with an IPO price of $0.20.
Source: Unusual corporate website
It derives revenue from three business segments: Promotion, Production, and others.
Under the Promotion segment, Unusual manages the end-to-end functions of live events planning and promotions. It covers marketing activities, venue selection, ticketing sales, and coordinating artists’ schedules. Sold-out performances by Asian and international artists organised by Unusual include the likes of Mariah Carey, Backstreet Boys, Andy Lau, Ah-mei, Jacky Cheung, and Jay Chou.
As for the Production segment, Unusual provides technical and creative expertise in different aspects of concert production such as concept development, set creation, stage design, audio and visual solutions.
Other income pertains to rental of exhibition and concert halls and related equipment.
In FY2019, the Promotion segment was the largest revenue generator with a 77% share of total sales, followed by Production. In terms of geographical spread, Singapore is the key market with almost 50% of sales. The group also has a sizable presence in Hong Kong and Malaysia.
Source: Unusual Investor Fact Sheet presentation
In the 9 months ended Dec-2019, Unusual revenue grew 48% to $60 million, due to a larger number of shows and new offerings in family entertainment. As a result, profit before income tax increased 10% to $11 million.
Net cash from operating activities was an outflow of $4 million due to a large increase in Trade and Other Receivables in the form of show fees, and concert and event hosting charges.
Balance sheet wise, gearing remained largely constant at 0.48 times of total assets. The company had taken more bank loans that increased its cash balance by almost three times to $14.7 million.
Strong Growth So Far
Unusual has a solid record of strong growth in the past three years. As shown, its revenue increased by an annual rate of 29.7% to $56.9 million in FY2019. The first nine months of FY2020 saw its revenue further expanded by 48%.
Net profit attributable to shareholders showed a similar annual growth rate of 34.1% over the same period.
The growth is largely driven by the Promotion segment as the company secures more exclusive marketing rights of major family entertainment shows such as Disney on Ice and Walking With Dinosaurs. The management expects family entertainment to be the new growth area going forward that helps diversify Ususual’s revenue away from concerts and events.
Source: Unusual FY2019 Annual Report
Contrary to the healthy uptrend in revenue and net profit, the group’s cash flow paints a different picture. Its net cash from operations had been negative in the past two financial years. This is undesirable as it is often a lack of cash to settle the immediate payment obligations that lead to the company going bust.
Fortunately, investors can take heart in Unusual modest cash balance that can pay off about 14 years of interest charges, based on the latest quarterly finance charge.
Impact of Covid-19
Without a doubt, Unusual 1Q 2020 financial numbers will be quite ugly due to the postponement of shows and events.
The group’s current focus is on conserving cash reserves to survive this period. Management is implementing a reduction of 10-20% in payroll, immediate cuts in all discretionary expenses, negotiating for revised payment terms on existing commitments.
The group is confident that based on their strong relationship with artists and their management companies, their Singapore and international events would resume once the Covid-19 outbreak is under control.
Weaknesses and Threats
Unusual had shown impressive growth since it went public, which suddenly took a sharp turn due to the Covid-19 outbreak. Essentially, a black swan event had thrown its entire expansion story into disarray. This shows that its business is highly sensitive to economic conditions and consumers’ discretionary spending.
While the virus outbreak also affects other industries, the impact on the entertainment industry and the group is especially pronounced. Even after the coronavirus spread is contained, fear might linger on longer than expected, leading to lacklustre ticketing sales that affect the group’s future revenue.
One of Unusual core assets is its network and relationship with crucial partners and influencers in the entertainment industry. Should key personnel such as the lead artists liaison manager leave the group, the loss of network will affect the company’s ability to clinch major concerts’ promotion contracts.
The live entertainment and shows industry in Asia is still growing strongly due to increasing disposable income as nations develop. There is also a vibrant showbiz sector especially in China and Taiwan. As an established player with a strong brand name in the sector, Unusual is very likely to continue expanding its portfolio of major shows by popular stars.
As of point of writing, Unusual share price has fallen significantly to a historically low of $0.14 per share. This gives it a price-earnings ratio of 10.1 based on earnings of the latest four quarters.
At this moment, no one is certain of when the situation would improve. Concerts and live-shows suspension will go on longer than expected.
This creates a very negative operating environment for Unusual, and its earnings will suffer a big fall in the next two quarters.
Prospective investors need to be fully aware of the risks ahead and have great holding power to last through the lull period.
CS Jacky is a Remisier and Financial Adviser with Phillip Securities Pte Ltd. Graduated with a Bachelor in Business Administration (Finance), he has been investing in the stock market since 2010. He identifies companies with good prospect trading at a low valuation using a unique blend of fundamental, technical, and portfolio analysis. He also holds REITs and dividend paying shares. He holds regular seminar to share about market updates, investment insights of specific stocks in his watch list, and overall wealth management for retail investors. He is the owner-blogger of 'CS Jacky - 360 Wealth Management' and a guest writer for Value Invest Asia.