Brokers' Call: MM2 ASIA

MM2 ASIA

Broker: DBS Group Research

Call: Buy

Target Price: 60 cents

mm2 Asia has seen healthy growth even with the uncertainties surrounding the Golden Village (GV) cinema deal. A healthy earnings per share growth of 9 per cent is forecast for financial year 2018, which could get much stronger - 34 per cent - for 2019, after factoring in the enlarged share capital from the recent equity fund-raising exercise.

The strong set of first-quarter results for 2018, with net profit up 30 per cent to $6.4 million, further reinforces the positive view of mm2 Asia.

mm2's earnings per share (EPS) is projected to grow at a compound annual growth rate of 54 per cent from financial years 2016 to 2019, underpinned by growth in productions, expansion into the China market and contribution from UnUsUal. The cinema arm, on the other hand, helps the group build a recurring income base.

The uncertainties surrounding the GV deal has caused the share price to drop by more than 20 per cent. A conclusion of the deal and better clarity on the strategy for the cinema business should help to set the foundation for more sustainable growth ahead.


EZION HOLDINGS

Broker: CIMB

Call: Sell

Target Price: 13 cents

The core loss of US$7.4 million (S$10 million) in the second quarter of this year was a big disappointment. While its number of utilised vessels stayed at an average of 14 in that period, gross profit margin was down to 9.9 per cent due to mobilisation costs for a vessel heading to China, additional expenses for two unchartered vessels received and a slide in daily charter rates for an existing vessel in that quarter.

Another downer was losses from its associates and joint ventures (JV) due to additional provisions for a unit owned by a JV.

Ezion's cash pile declined to US$93.5 million as at the end of the second quarter of this year due to approximately US$30 million in capital expenditure spent on refurbishment of assets to be mobilised and approximately US$60million in debt repayment. It also reported a negative operating cashf low of US$2.4 million.

Management indicated that a depressed charter-rate environment is likely to continue in the next 12 months as oil and gas operating expenditure spend is still lacking. Furthermore, it has met resistance from financial institutions in its funding talks for six vessels it aims to deploy.


SUNTEC REIT

Broker: DBS Group Research

Call: Hold

Target Price: S$1.95

It is too late to chase the stock as the expected turnaround in Suntec's operations is not without execution risks despite the impressive gains made by new chief executive officer Chan Kong Leong, and a large portion of the "good news" has been priced in.

The consensus target price of around $1.74 is too bearish as Suntec's shares are likely to remain well supported, given an expected recovery in the Singapore office market next year, which typically results in Reits trading closer to book value. Secondly, there is increased investor interest on the back of continued positive footfall and tenant sales data from Suntec Mall.

Beyond a pullback in Suntec's share price, we would turn more bullish on Suntec, if the Reit is able to achieve a faster-than- expected improvement in rents, given its plans to reduce the number of large stores at Suntec Mall and increase the variety of retailers there.

The key risks include failure to drive footfall and tenant sales at Suntec Mall, which curtails the ability to attract prospective tenants and drive rents higher.

A version of this article appeared in the print edition of The Straits Times on August 21, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe