Broker's take: KGI maintains 'buy' on Cityneon, raises target price on strong FY17, future growth

HIGHER than expected earnings, potential higher margin services, and future collaborations and acquisitions have all contributed to KGI Securities maintaining its "buy" recommendation on creative solutions provider Cityneon Holdings.

KGI is raising its 12-month target price on the stock to S$1.54 on a maintained "buy" rating from S$1.38 previously, based on earnings per share of S$0.11 in FY2018 and a price to earnings ratio of 14 times, representing a 20 per cent discount to its peers for its short track record.

Cityneon's shares have seen a 52-week low of S$0.78 and high of S$1.26.

KGI highlighted Cityneon's FY2017 net profit of S$17.4 million as exceeding the broker's expectations of S$16.4 million, driven mainly by its intellectual property (IP) rights segment, which saw revenue grow 187 per cent year-on-year.

Cityneon has also secured a US$60 million loan facility to scale its IP business; KGI believes that a potential acquisition could be imminent and would be a "re-rating catalyst" for Cityneon.

Moving up the value chain from building and construction services to providing design services will also keep margins high, KGI said.

"We believe that Cityneon could possibly be looking to collaborate with similar companies in the media/creative industry or even seek out acquisition targets in the creative space to align the group's traditional core business with that of the IP business," KGI said.

Cityneon's counter was trading flat at S$1.06 apiece as at 9.46am on Monday.