Excerpts from analysts' report
UOB Kay Hian analysts: Nicholas Leow & Andrew Chow, CFA
 To Infinity And Beyond With the acquisition of VHE, an exhibition production and distribution company, Cityneon has propelled itself into the forefront of the business of immersive attractions. The company is poised to ride the wave of the Avengers and Transformers blockbuster movie titles. Together with VHE’s relationships with big name partners such as Hasbro Inc, Marvel Entertainment and The Walt Disney Company, Cityneon is well positioned to grow as it embarks on entertaining a generation of superhero fans. We initiate coverage with a BUY and a PE-based target price of S$0.72. |
INVESTMENT HIGHLIGHTS
• Initiate coverage with BUY and a PE-based target price of S$0.72. After the acquisition of Victory Hill Exhibitions (VHE) in Sept 15, Cityneon had acquired the rights to use the Avengers S.T.A.T.I.O.N and The Transformers Experience franchise to open exhibits that immerse audiences in the world of Marvel Comics and the Autobots. Combining advanced technology with the Marvel and Hasbro partnerships, VHE has established high barriers to entry and a scalable business model.
• High barriers to entry through established customer relationships and advanced technology. In 2013, VHE sealed a multi-year deal with Marvel Entertainment to produce and deliver engaging and interactive exhibitions to the global market. VHE spent more than a year and more than US$8.5m to develop and produce the original Avengers S.T.A.T.I.O.N. exhibition set which incorporates advanced 3D stereoscopic technologies, advanced robotics and projection mapping to captivate audiences.
| ♦ Highly scalable business |
| "We consider the VHE business model to be highly scalable as its earnings performance is correlated with the number of sets that the company has. Outside of the US, VHE operates on a low execution risk model in which they find partners in the target region. We forecast Cityneon will deliver an explosive adjusted 3-year EPS CAGR of 107% in 2015-18." -- UOB Kay Hian |
• Scalable business model with manageable execution risk. Cityneon currently has three completed exhibits globally with one more in construction for 2016. Two exhibits will be permanently housed in Las Vegas while the other two will be travelling exhibits with one currently in Paris and one in construction for China.
• Strong pipeline of movies all the way to 2020. Marvel has already planned its movie releases all the way to 2020 and beyond. Transformers on the other hand, is a relatively newer franchise as the first Transformers movie was only released in 2007 and since then there have been four movies with another four planned till 2019.
• Endless opportunities in the Disney universe. When Disney first acquired Marvel in Aug 09 for US$4.2b, there were more than 5,000 characters in the Marvel library back then. Apart from the Marvel franchise, other franchises include Guardians of the Galaxy, X-Men and Fantastic Four. According to Licensemag.com, The Walt Disney Company is the largest global licensor in the world and recorded global licensed product retail sales of about US$45.2b in 2014.
Today, Disney has 11 franchises under its belt that deliver in excess of US$1b in product sales. Among these billiondollar franchises are Marvel, Toy Story, Frozen, Star Wars and Disney Princess. Given that Cityneon has established a relationship with Marvel, we expect that porting the business model to other franchises would be an exciting possibility and Cityneon is well-positioned in this regard as an extension of Disney’s marketing arm.
Full report here.
