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Broker's take: Maybank Kim Eng downgrades mm2 Asia to 'hold' with market optimism priced in

MAYBANK Kim Eng has downgraded its recommendation of mm2 Asia to "hold" as optimism over the performance of mm2-produced movie More Than Blue and another tie up with Fox Networks Group Asia has been priced in.

Other than the rating change, the brokerage made no changes to forecasts as it awaits mm2 divisional disclosures in fiscal-year-end reporting. The target price is S$0.34.

More Than Blue is a Taiwanese remake of a 2009 South Korean film. While mm2 is not an investor in the film, the company usually takes producer bonus fees of 8 to 12 per cent from movies that have become box office hits.

Maybank Kim Eng analyst Luis Hilado noted that by focusing on production instead of film investments, mm2's core production business is insulated from volatility.

Moreover, long-term positives for the company are likely to surface as it builds a reputation as a hit-making producer.

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Therefore, mm2 should continue to bag future production work from regional or global players as evidenced by recent production deals with Netflix and Fox, Mr Hilado added.

Maybank Kim Eng continues to view the media and entertainment player's content-production business favourably, which is supported by a healthy pipeline.

That said, there could be big-screen content risks due to changing viewer habits towards streaming platforms. Therefore, producing more content for such platforms could be essential to mm2, Maybank Kim Eng said.

Another downside risk to the brokerage's outlook is mm2's leverage due to its Cathay cinema acquisition deal in 2017.

"Unfortunately, its Cathay cinema acquisition has clouded all interim visibility of its production business and overall prospects due to leverage.

"Although upcoming fiscal-year results could provide visibility of all parts, this would be followed by a nine-month revenue fog unless management enhances interim disclosures."



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