UOBKH starts coverage on GHY Culture & Media with 'buy' call, S$1.08 target price

Singapore

UOB Kay Hian (UOBKH) has initiated coverage on GHY Culture & Media Holding with a "buy" recommendation and target price of S$1.08.

The entertainment and content provider made its debut on the mainboard of the Singapore Exchange (SGX) in December last year at 70 Singapore cents, 6.1 per cent higher than its initial public offering price.

In an initiation report on Wednesday, UOBKH said it expects a three-year projected revenue compound annual growth rate (CAGR) of 56 per cent in FY2019-2022, driven by growth from the completion of drama productions.

This is based on the company's strong production pipeline of 23 drama or film projects for production and release, which will be guided by the company's "visionary founder, experienced key management team and reputable team of industry veterans", said the brokerage.

In the report, UOBKH noted that several of GHY's productions, such as The Little Nyonya and Perfect Village, have achieved commercial success in China, and said the company has potential to maximise its production abilities given its end-to-end production capabilities.

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GHY previously stated in its product highlights sheet that it intends to capitalise on its ability to keep up to date with technological developments and viewership trends that drive consumption growth.

It further aims to expand its regional reach and strengthen its presence in South-east Asia.

Citing data from consulting firm Frost & Sullivan, UOBKH has identified the high-growth Web series market and online video platforms as some possible avenues for GHY to diversify and expand its pipeline of content and products into.

The brokerage also believes GHY is poised to benefit from the resumption of concerts, as the company was recently granted rights to undertake the production of concerts from Taiwanese singer-songwriter Jay Chou in Singapore, Malaysia, Australia, Thailand, Japan and China (excluding Hong Kong and Macau).

"From 2017-19, Jay Chou held 41 concerts and ranked first among all China singers in accumulated ticket sales for concerts in China. This will provide GHY a formidable platform to undertake the production of more concerts and events in the future," said UOBKH, which is estimating a three-year CAGR of 243 per cent from concert production revenue on a low-base effect.

The brokerage is projecting earnings growth of 72 per cent CAGR over FY2019-2022. GHY's FY2020 and FY2021 earnings are estimated to come in at S$44 million and S$63 million respectively, translating to 266 per cent and 43 per cent year-on-year growth.

"We value GHY at 18.5 times 2021F price-to-earnings, in line with China media production peers'. Given GHY's positioning as a producer of high-quality drama series, we opine that the group might be able to garner a higher selling price per episodic series compared to its peers. This should put the group on an even footing or even at a slight premium vis-à-vis peers in the industry. Wider analyst coverage will also help to re-rate the counter," it added.

GHY had on Wednesday evening announced that its indirect associate company Tianjin Changxin Film & Media Co has incorporated a firm in China through a joint venture (JV) limited partnership.

Tianjin Changxin has a 48.9 per cent stake in the incorporated firm known as Xiamen Kaimen Jianjun Film & Television Industry Investment, which has a registered capital of 10.22 million renminbi (S$2.1 million). Its key business activities will include literary and artistic creation, in particular, script development and creation.

Shares of GHY closed six cents or 7.6 per cent higher at 84.5 cents on Wednesday.