mm2 Asia (1B0) – Compelling Valuations after 40% share price slump in 2018

mm2 Asia (1B0) – Compelling Valuations after 40% share price slump in 2018
Price: S$0.305
Market Cap: S$354.7M
Shares outstanding: 1,162.8M
Free Float 43.8% (509.3M shares)
PE: 13.11X
Est FY19 PE: 12.2X
Yield: N.A
52W High: S$0.545
52W Low: S$0.30

mm2 Asia is one of Asia’s leading content producers and entertainment group.
A media content provider that produces movies and infotainment programs for television stations, advertisers and online media.
Key businesses include Content Production (Core), Post Production (Vividthree), Cinema Operations (Cathay) & Concerts Promotion & Production (UnUsUaL)

Core Production
mm2 derives core content revenues from contractual production of films/content, protecting its bread & butter from poor box office performance while ensuring good returns
Healthy pipeline of ~80 films and expansion into North Asia which will drive revenue as budgets are typically larger than SEA content
Beyond the chinese market, the Group is also seeking opportunities in regional film co-productions, as seen by projects:
1) Fox Networks Group Asia investment in 4 feature films by mm2 Entertainment
2) Netflix Original co-production – Triad Princess (Second original mandarin series) –
3) Slate financing partnership with Korea’s CJ E&M

Post production (Vividthree)
3D animation, VFX, VR & Computer Generation Imagery (CGI)
Virtual reality IP (Train to busan)
51% acquired by mm2 in early 2015 for S$3M @ 3X PE

Events Production & Concert Promotion (UnUsUaL)
39.2% shareholding – recently sold 5.4% stake @ $0.465 to Brunei Prince (4.76%) & r3 Asset Management (0.64%)
Leading player in SG for live entertainment & concerts
48 “Disney on Ice” shows across South Korea
Walking with Dinosaurs – 117 shows across 11 cities (BBC Series)
Apollo 11 Moon Landing Exhibition – 153 shows in 3 years in North America w/ option for Rest of World
NPAT of S$10M for FY18

Cinema Operations (Cathay & Lotus)
Key playing in SG & MY
4th largest operator in Malaysia with 18 cinemas & 14% in terms of number of screens
Acquired Cathay Cineplex in SG for $230M (8 Cinemas, 64 screens & 12.2k seats)
Cathay has 39-40% of SG box office in 2015/16
Strategic acquisition acts as recurring earnings base, distribution platform & negotiating tool
Adjusted EBITDA of S16.66M for FY16 (Cathay)
Key cinema metrics like average ticket price & average F&B spending have showed progress
To maximize profitability, management has guided that they have been successful in increasing efficiency and lowering cost through various initiatives such as
1) Adding advertising slots before movies (Increase in advertising revenue at little cost)
2) Advertisement on pillars/surrounding
3) Garnering sponsorship to defray cost

*Golden Village Singapore stats (For information & comparison)
13 cinemas in SG
105 screens
For six months ended 30 June 2018
4.4M admission
Net Average ticket price S$10.6
Box Office receipts S$46.1M
6M Revenue HK$426.4M (~SG$76.7M)
6M Net Profit HK$69.6M (~SG$12.52M)
6M NPM 16.3%

1HFY19 Revenue $113.9M
1HFY19 Net Profit $14.6M (Affected by 1 off charge of S$1.6M in relation to Cathay Cinema purchase)
NP Margin 12.8%

FY18 Revenue $192M
FY18 NP $26.4M
NP Margin 13.75%

Melvin Ang Wee Chye – 38.11%
Starhub – 9.83%
Benny Yeo Khee Seng – 8.19%
Fidelity – 1.96%

Chairman – Melvin Ang (Former MD of Mediacorp Studios and Founder of mm2)
Group CEO – Chang Long Jong (Former Mediacorp Deputy CEO)
Group CFO – Chong How Kiat
CEO of Cinema Business – Hock Ong (Chief Corporate Development Office)

Key Catalyst
1) Company issued convertible notes of S$47.85 million @ 2% annual interest rate to partially finance the Cathay acquisition with a maturity date of the earlier of

A) an IPO of the cinema business (Conversion price would be @ 15% discount to IPO price)
B) third anniversary of the date of issuance of notes (7 February 2018)
There have been concerns raised by the market & investors of the debt overhang from purchasing Cathay and the drag on core margins by this heavy asset business, thus an IPO of the cinema business would reduce debt burden and prove a boon to mm2’s margins and be a key to unlocking value.

2) In June 2017, mm2 Asia successfully raised equity by way of placement @ S$0.57/share to raise ~S$20 million dollars, purpose of fund raising was for the intended purchase of a 50% stake in Golden Village Cinema Singapore for S$184.25M from Village Cinemas Australia, the deal eventually fell through when the other 50% shareholder Orange Sky Golden Harvest HK blocked mm2 Asia’s bid and bought the stake for S$175.8M

A good question to ask would be why did the market agree to fund mm2 @ S$0.57 a share to purchase a 50% stake in a cinema chain while pricing mm2 @ S$0.305 today when they have managed to acquire a 100% stake in a cinema where they will call ALL the shots in running the business?

IS the group any worse off by having total control over a legendary cinema franchise in Singapore over a 50% stake in a competing cinema chain?
What is the reason for the variance in perception for share price to slide 40% through 2018?

2QFY19 earnings were also impacted by a one off charge of S$1.6M relating to the cinema acquisition, the absence of such charge will also improve margins and bottom line.

mm2 Asia is slated to report 3Q19 results next month (Feb 2019) and we note second half results is usually seasonally stronger across all its business segments.

Post share price correction, mm2 Asia is trading at a PE of 13X and a discount to sector average of ~25-30X PE, purchases at current price levels may prove timely for investors to await for a positive change in market sentiment/perception.

4 Research analyst maintain an average target price of S$0.56 (Bloomberg data), representing a potential upside of ~83%

Disclaimer: THIS IS STRICTLY FOR GENERAL INFORMATION PURPOSES & should not be construed as a solicitation or offer to buy or sell any securities. Thank you!

Mandarin Oriental (M04) – Potential Asset Sale to Unlock Value?

Mandarin Oriental (M04) – Potential Asset Sale to Unlock Value?
Price: USD$1.97
Market Cap: USD$2,484.1M
Shares outstanding: 1,257,798,986 shares
PE: 52X~
PB: 2.2X~
Yield: 2.03%
52W High: US$2.15
52W Low: US$1.22

Mandarin Oriental Hotel Group is a luxury international hotel investment and management group that operates 29 hotels and 8 residences in 19 countries and territories, with a pipeline of 11 hotels and 5 residences over the next five years.

The group owns 10 of the hotels while the rest are under management contracts

Revenue breakdown in 2016 as follow, Hong Kong (37%), Europe (30%), Rest of Asia (18%) and America (15%)

Business Model
Mandarin Oriental operates under 2 business model
As at FY16, 67% of hotel rooms were owned while remaining rooms are under management contract

1) Hotel owner: Takes an equity stake in the development and operates them independently, taking on all development cost, CAPEX, wages ETC.

2) Management Contracts: Only involved in managing the hotel and bears no development cost or CAPEX. Mandarin Oriental will receive a fixed based fee for its services and an incentive fee depending on the performance of the hotel.

Business strategies & Recent Development
– Expansion with Asset Light Model
In addition to existing portfolio of 29 hotels and 8 residences, management has announced that another 11 hotels and 5 residences are expected to be completed over the next 5 years, which will add a total of 2,644 rooms, increasing total room count by 34%

These upcoming projects over the next five years will all be under management contract model, enabling quick expansion under a more asset-light model and mitigating risk exposure, downside however is that profit growth is limited as compared to hotel owned model.

– 3 European Hotel under renovations Mandarin Oriental is in the midst of renovating its London Hotel which is due for completion by mid-2018; historical trends show that Revpar has increased post completion of renovation.
Renovation for Madrid Hotel is scheduled to commence in early 2018 while Munich Hotel is expected to construct an extension of the property in 2020

-Potential Asset Sale to Unlock Value? Mandarin Oriental announced the possible sale of The Excelsior Hotel, located on a prime commercial waterfront site in Causeway Bay, HK on 4 June 2017.

The Excelsior is the ONLY hotel which is not branded “Mandarin Oriental” in the portfolio and is a four-star hotel compared to the rest of the hotels which are all five-stars. The Excelsior is also being held on Mandarin Oriental’s book at HISTORICAL COST.

The Hong Kong Buildings Department has in 2015, approved The Excelsior to be rezoned into a commercial building with a GFA of 63,500sqm. (683,500 sqft)

Proceeds from a potential sale of the property are mouthwatering. As a commercial property, we can take reference from the recent sale of the Murray Road commercial plot in Central to Henderson Land by the HK government for an eye-popping HK23.28B (US$3B), this translate to a valuation of HK$50,064 psf.

Applying the same metrics to The Excelsior would imply potential proceeds of HK$34B (US$4b), compared to the current market cap of Mandarin Oriental @ US$2.5B.
This means an investor buying Mandarin Oriental now will be getting The Excelsior property at a discount and the REST of the business FOR FREE!

We should however note that the Murray Road valuation is at the upper range, taking into account 3 other commercial transactions that have closed over the last two years. If we used the lower end of the valuation range @ HK$20,749 PSF, this would yield a valuation of HK$14.18B (US$1.8B), which is roughly 72% of Mandarin Oriental’s current market cap.

Key Risk
Macro Risk – Luxury hotel segment is highly sensitive to consumption spending patterns and hinges on consumers’ willingness to spend on luxury experiences
Execution Risk – Delays in renovations or new hotel openings will crimp growth and affect Revpar
Unforeseen Events – Exposed to one-off events like natural disasters, diseases outbreak, terrorist attack etc.
Oversupply of hotels – High competition from new luxury hotels could cap Revpar growth and lower occupancy rate
Currency Risk – Mandarin Oriental operates globally and is therefore exposed to various currency risks

Jardine Matheson 77.29%
Schroders PLC – 1.68%
GAMCO – 1.15%

FY16 Revenue USD$597.4M
FY16 Net Profit USD$57.3M

1HFY17 Revenue USD$286.7M
1HFY17 Net Profit USD$15.2M

Cash & Bank USD$182.6M
Total Borrowings USD$479.9M

Mandarin Oriental is current trading @ 2.2X~ PB, below its Hong Kong peers at 6X, Rest of Asia peers at 3X and American peers at 7X

With the announcement made on the potential sale and the group’s statement that they believe they will be able to ride on the current strong commercial property valuations, it is plausible that the company may take the chance to divest and focus on their “core” Mandarin Oriental branded portfolio and five star hotels.

An investment case based on the potential sale is indeed very attractive but we need to take into account the fact that the Jardine Group rarely disposes assets.

The last time Mandarin Oriental sold something was a 50% stake in Mandarin Oriental, Macau back in 2009 which was valued at HK$1.6B (US205M)

Therefore, investors buying into Mandarin Oriental should be prepared to hold out for the long term while waiting for further announcement of the potential deal and keep in view the possibility that no sale may occur.

Disclaimer: THIS IS STRICTLY FOR GENERAL INFORMATION PURPOSES & should not be construed as a solicitation or offer to buy or sell any securities. Thank you!

UnUsUaL Limited (1D1) – Aims to double shows

UnUsUaL Limited – Singapore’s #1 IPO YTD
IPO Date: 10 April 2017
IPO by way of Placement @ $0.20
Price: $0.51
Market Cap: $328.1M
Shares outstanding: 643,237,059 shares
PE: 56X (Based on pro-rated FY17 12 months earnings)
52W High: $0.54
52W Low: $0.40
41.9% Subsidiary of MM2 Asia(1B0)

Incorporated in Sep 1997
UnUsUaL Limited specializes predominantly in the production and promotion of large-scale live events and concerts by renowned international artistes in Singapore and the region.
Production business segment – UnUsUaL provides overall support to the artiste’s team or the event organizer in their set-up and installation.
UnUsUaL also provides creative input for the production of an event, usually for large-scale event organizers.
Promotion business segment – UnUsUaL take charge of the overall planning and managing of concerts/events
Others – Collaboration with SingEx Ventures group for use of The Max Pavilion @ Singapore Expo

Business strategies & Recent Development
Expand operations both locally and regionally
Expand access to event and concert venues
Expand our operations via acquisitions, JVs and investments
Directors believe that the outlook for the production and promotion business in SG and the region is expected to remain positive
Expect to tap on MM2 Asia presence/network in Greater China & Hong Kong

UnUsUal Entertainment, a wholly owned subsidiary has recently organized 2 nights of sold-out Jacky Cheung “A Classic Tour” concert in Zhongshan, Guangdong, PRC with seating capacity of 22,000~ per night compared to 55,000 for Singapore National Stadium, 12,000 for Singapore Indoor Stadium and 5,000 for Star Performing Arts Centre.

Barring any execution risk, one can easily see the potential for growth by comparing China’s population, appetite for live events/shows and number of cities to Singapore’s 5.5M~ population

CEO Mr Leslie Ong was recently interviewed by Bloomberg and in the video shared more about their strategies and the potential market size.
“These cities have great potential because of their population, and because there aren’t many concerts there” Ong said, referring to smaller Chinese cities such as Wu-xi and Wuhan.

Please access the video in the link below


UnUsUal will also be bringing
Foo Fighters – Singapore
Michael Learns to Rock to 3 Asian Markets – Manila, Singapore and KL
Justin Bieber – Singapore
Delivering on their promise to diversify to more western acts, these developments also highlight the probability of taking on more shows for the same or other artistes touring the region, thereby contributing to UnUsUaL’s target of doubling their shows.

Key Risk
Promotion segment depends on relationships between key agents, managers and artistes, any adverse changes in these relationships would adversely affected UnUsUaL’s business.
Promotion segment may be adversely affected if UnUsUaL is unable to lease or acquire concert/event venues
Schedule events/concerts may be cancelled or postponed, reputation and financials will be affected
May be liable for losses incurred when selling rights to concerts/events to third parties
Exposed to risk in non-performance and quality of subcontracted works
Poor weather may affect attendance of events/concerts
Business sensitive to public tastes and ability of UnUsUaL to secure popular artists and events


Management stated that they are the only established group in SG which is both a producer and promoter and that there are no major competitors which match UnUsUaL’s profile in the industry
Directors believe that barriers to entry for both productions and promotions industry are relatively high
Major customers are ticketing agents, Sistic & Sports Hub through whom end customer purchase tickets

In the recently published 2017 Annual Report, we also note that the $4,000,000 amount earmarked for expansion through acquisition, JV or strategic alliances remain unutilized, any development in this aspect should provide positive price momentum and more exposure for UnUsUaL to the investing public.


CEO – Leslie Ong
COO – Johnny Ong
Non-Exec Chairman – Melvin Ang
CFO – Tay Joo Heng

UnUsUaL Management – 82.18% (51% mm2 & 49% Ong Brothers)
SPH Asiaone Ltd – 4.9%
Maybank Kim Eng Securities – 3.45%
Yeo Khee Seng Benny – 2.33%
Maxi Harvest Group – 0.91%
Apex Capital Group – 0.91%

Top 20 Shareholders own 97.04% of the company.

FY15 Revenue $26.1M
FY15 Net Profit $4.08M
2015 saw higher revenue and NP due to one off SG50 events

FY17 UNU numbers

FY17 (15 Months) Due to change of year end to 31 March
FY17 Revenue $33.9M
FY17 Net Profit $7.3M
Cash & Bank $10.7M
Total Borrowings $570K

Group’s Profit after tax for FY2017 was S$7.3M over a 15 month period compared to S$4.1M in FY 2015, representing an increase of S$3.2M or 78.4%

At first glance, valuation may look expensive considering UnUsUaL has already returned 255% since IPO and trades at a range of 50 – 60 PE
1) With the small public shareholder float
2) High growth potential
3) Unused funds for M&A or JVs
4) Aim of doubling shows organised by 2018

It seems that shareholders are set for an unusually exciting ride ahead.

Disclaimer: THIS IS STRICTLY FOR GENERAL INFORMATION PURPOSES & should not be construed as a solicitation or offer to buy or sell any securities. Thank you!

*As at 18/07/2017, there are no analyst coverage or target price.

Link to UnUsUaL Limited FY2017 Annual Report
Continue reading “UnUsUaL Limited (1D1) – Aims to double shows”

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