Broker's take: DBS downgrades mm2 Asia to 'fully valued' following closure of Singapore cinemas
DBS Group Research on Wednesday downgraded mm2 Asia to "fully valued" from "hold" and lowered its target price to 10.7 Singapore cents from 30 cents after the Republic on Tuesday announced the closure of cinemas amid the Covid-19 pandemic.
A "fully valued" call implies a negative total return of more than 10 per cent over the next 12 months.
Shares of the mainboard-listed local media producer, which owns Cathay Cineplexes, were up 0.6 Singapore cent or 4.8 per cent to 13 cents as at 10.52am on Wednesday.
Singapore's closure of entertainment venues, including cinemas, from March 26 to Apr 30 will further aggravate mm2 Asia's near-term outlook, DBS said.
A key risk cited by DBS is a lack of long-term financing for productions as the commencement of each production depends on mm2's ability to secure funding.
A second risk was a lack of good scripts, which may lead to less support from stakeholders.
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However, DBS sees a gradual improvement in the fight against Covid-19 from the second half of next year and a recovery in fiscal 2022.
It also expects mm2 Asia to benefit from more government support packages to help cushion the impact of the pandemic.
Although mm2 Asia's Singapore and Malaysia operations are impacted by the closure of cinemas and a movement control order respectively, DBS expects demand in China to return for its core business as the virus situation there shows signs of coming under control.
There is a risk the nascent recovery on the mainland might regress as Beijing tightens quarantine rules for overseas travellers, and China reported a doubling in the number of new cases, DBS added.
It noted mm2 Asia had gone from a positive net cash position to a net debt position following its acquisition of Cathay Cineplexes for S$230 million in November 2017.
DBS cited deleveraging as a potential share price driver for the company.
mm2 Asia on Tuesday said it remained cash flow positive amid the novel coronavirus outbreak. However, this was before Singapore announced the closure of all cinemas.
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