Excerpts from analyst's report
DBS Vickers analyst: Ling Lee Keng
 Creator of innovative and interactive exhibitions, with exclusive IP rights for Avengers and Transformers. With the acquisition of Victory Hill Exhibitions (VHE) in September 2015, Cityneon has evolved to become a creator of innovative and interactive exhibitions, focusing on creating innovative and captivating content, and delivering engaging and interactive exhibitions to audiences. To date, it has secured two IP rights – The Avengers from Marvel in 2013 and Transformers from HASBRO in 2015. |
Scalable business model with low execution risk. Cityneon’s earnings are directly correlated with its number of exhibits. So far, it has two permanent sets in Las Vegas and another two travelling sets; we expect it will have a total of six sets by end- 2017 and eight sets by 2018. The group operates on a relatively low execution risk model as outside the US, it will find partners in the target region, which will assume the operating risks.
| Cityneon Holdings | |
| Share price: 74 c |
Fair value: $1.03 |
Potential for third IP, and to tap on other Walt Disney franchises. There is a huge pool of franchises to be tapped under the Disney umbrella, aside from the Marvel franchise. Some attractive options include Star Wars, Jurassic Park, Batman and Spider. We expect the VHE team to leverage their credentials in developing the Avengers and Transformers exhibits to leapfrog to the next IP.
Expect earnings to improve from FY16F. Earnings for FY16 should see a jump with the incorporation of VHE, due to contribution from the Avengers set in Paris and Las Vegas, as well as an upfront licence fee to be partially recognised in FY16 for the 2-year agreement in China. Thereafter, a ramp-up in operational sets will drive earnings growth. We have not factored in the potential of a third IP.
Initiate with BUY; TP S$1.03, based on peer average of 15.2x FY17F earnings. At a low PE to growth of <0.1x, stock is attractive to investors seeking growth and unique ideas in the entertainment industry. An expanding project pipeline, plans to add a third IP right, and potential tie ups with CMC are catalysts for the stock.
Full report here.
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