mm2 Asia expands footprint with S$230m Cathay cinema deal

Singapore

ENTERTAINMENT company mm2 Asia is set to take over all of Cathay Organisation's cinema operations here - including the historic operator's brand name - as it presses on with its expansion into the movie theatre business after a failed bid to acquire another cinema chain in Singapore.

mm2 Asia yesterday announced a deal to buy all of the shares in the group's Cathay Cineplexes subsidiary, which runs eight cinemas in Singapore, for S$230 million.

The acquisition is expected to be completed by Nov 24 and would put into mm2 Asia's hands its first set of Singapore cinemas. It already has 19 movie theatres across the Causeway.

The consideration - which includes a deposit of S$15 million - takes into account Cathay Cineplexes' adjusted earnings before interest depreciation and amortisation (Ebitda) expense of S$16.66 million for full year to Dec 31, 2016, as well as present and future revenue from the newly opened Parkway Parade cineplex, pegged at S$21 million.

The price tag also includes the "intrinsic brand value" associated with the Cathay Cineplexes brand, estimated to be worth between S$24 million and S$30 million.

On top of that, Cathay will offer its management services for six months from the deal's completion "to ensure a smooth transition", for a management fee yet to be agreed upon.

mm2 Asia group executive chairman Melvin Ang said in a statement that "our continued diversification from production to cinema operations is part of our strategic growth plan".

According to the company's announcement, the move is "in line with the group's overarching strategy to diversify into the downstream value chain of film production".

The company was behind local films such as Jack Neo's Ah Boys To Men and one industry expert said it could bank on this niche going forward.

Marketing professor Ang Swee Hoon of the National University of Singapore Business School said: "There're too many cinemas in Singapore and I wonder, for them to have eight here, whether... they are thinking of showing local or very regional movies."

To fend off competitors, mm2 Asia could have its films play only in theatres under its own umbrella, Associate Professor Ang suggested.

Besides Cathay's eight cinemas here, leading chains are Golden Village with 12 cineplexes, and Shaw Theatres with seven.

DBS analyst Ling Lee Keng raised his target price from S$0.60 to S$0.73 while sticking to a "buy" call, noting: "This acquisition will complement its current cinema operations in Malaysia, and further cement mm2's status as the leader in the media/entertainment industry.

"With a much larger and stronger scale, mm2 can now enjoy the synergistic benefits from the entire value chain."

The counter closed down by S$0.015, or 2.59 per cent, to S$0.565 yesterday, after the announcement.

mm2 Asia had earlier this year gunned for a 50 per cent stake in the Golden Village cinema business in Singapore, for a purchase consideration of roughly S$184.25 million.

But that plan fell through after the brand owner's other shareholder - Hong Kong's Orange Sky Golden Harvest Entertainment (Holdings) - said no. It has since consolidated its stake to own Golden Village in full.

mm2 Asia also previously made a successful foray into Cathay's Malaysian cinema business in 2015, inking a RM40 million (S$12.8 million) deal for two movie theatres.

But that agreement gave mm2 Asia only a six-month licence to use the Cathay brand, and the business was last year renamed mmCineplexes.

Cathay Organisation - which delisted from the Singapore Exchange in 2006 - was founded in 1935 by the family of the late rubber and tin tycoon Loke Yew.

Its other businesses include the management of The Cathay building, a gazetted national monument, as well as other hotel and property operations.