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Broker's take: DBS maintains 'buy' on film producer mm2 Asia

DBS Group Research has maintained a "buy" rating on mm2 Asia, a Catalist-listed producer of films and television and online content in Asia.

With StarHub now becoming a strategic investor with a 9.05 per cent stake in the company, mm2 can tap the telco's strong brand name, potentially raising its profile and paving the way for bigger opportunities ahead, said analyst Ling Lee Keng in a note released last Thursday.

mm2, which generates revenue by extracting fees from producing and distributing movies, has a high-margin business model - gross margin is between 40 and 50 per cent; net margin is about 20 per cent - with an "impressive" growth outlook.

Mr Ling added that he expects mm2 to grow at an EPS CAGR (earnings per share compounded annual growth rate) of 59 per cent from FY15 to FY18, underpinned by growth in local productions, contribution from cinema operations and its newly-acquired entertainment company, UnUsUal Group, and expansion into the China market.

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The latter is one of the world's most lucrative movie markets, said the report. "Chinese films generally have bigger budgets and better margins than local productions."

Key risks to mm2 Asia include the absence of long-term financing arrangements for productions, and that productions may be adversely affected by delays and cost overruns.

In the note, Mr Ling declared a target price of S$0.63 on FYMar17 EPS, up from S$0.525 previously.