Broker's Take

mm2 Asia | BUY Aug 15 close: S$0.42 Target price: S$0.62 DBS Group Research, Aug 15

We continue to expect strong earnings compound annual growth rate of 25 per cent for FY2018-20F, underpinned by growth in production, expansion into the China market, and contribution from UnUsUaL.

The stronger cinema arm, with the completion of Cathay cinema acquisition, helps the group build a recurring income base. Having a strong presence in the entire value chain of content creation and distribution further cements mm2's status as the leader in the media/entertainment industry.

Growth in revenue from all segments; Q1 FY2019 revenue doubled to S$49 million while net profit gained 13.2 per cent year-on-year to S$7.2 million.

We value the production business at 18 times price/earnings ratio, in line with peers listed in Asia, versus consensus' valuation of about 22 times.

For UnUsUaL, we value it at current valuation. For the cinema segment, we use 21 times price/earnings ratio versus consensus' 20 times.

Reiterate "buy". Our sum-of-parts target price is now S$0.62, pegged to 18 times FY2019F earnings for core business, cinema and post production segment, and current valuation for UnUsUaL, reduced from 21 times previously, in line with peers.

Food Empire | NEUTRAL Aug 15 close: S$0.555 Target price: S$0.60 RHB Research, Aug 15

Downgrade to "neutral" from "buy" with lower target price of S$0.60 from S$1.07, implying 7 per cent upside. We believe the group is heading in the right direction over the long run by diversifying into Asia.

However, with the US imposing more sanctions on Russia, we expect more downside risks from the depreciation of the rouble and its regional currencies. As such, we see limited reasons to be vested in Food Empire over the near term given that 60 per cent of its revenue is generated from Russia and other Commonwealth of Independent States (CIS) countries.

Food Empire recorded forex loss of US$2 million in Q2 FY2018 as the rouble and euro weakened against the US dollar. We note that the group derives 40 per cent of its revenue from Russia and has loans (for the purchase of equipment at its new plant) denominated in euros. The forex loss represented 55 per cent of pretax profit, dragging it down 20 per cent compared to Q2 FY2017.

Compiled by Leila Lai

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