Spackman - RHB Invest 2017-01-09: Next Hit ~ Golden Slumber in 2Q17

SPACKMAN ENTERTAINMENT GRP LTD 40E.SI

Spackman - Next Hit ~ Golden Slumber in 2Q17

With Master being a big hit, Zip Cinemas, under Spackman Entertainment Group (SEG), has affirmed its status as a premium Korean movie producer.
Earnings from Master would be reflected in 1Q17F instead of FY16F due to timing of the screening. Their next production – Golden Slumber, a manhunt thriller is slated for 2H17 and top A-listers Kang Dong Won and Han Hyo Joo would star in the movie.
With investors looking for continuity in earnings, we believe that this movie, coupled with future productions should drive earnings and drive its turnaround.

FY16F would still be a loss making year for Spackman Entertainment Group (SEG) due to operating costs from OPUS Pictures which was only disposed in Aug 2016 while profits from the blockbuster – Master, would only be recorded in 1Q17F.
This is mainly because SEG is not the presenter nor distributor of the movie and would only be able to get a share of the consolidated earnings from the movie after screening ends. This also means that SEG’s earnings should see a spike in 1Q17F, as most of the profits from Master, including its ancillary income (worldwide sales) would likely kick in by then.

The worldwide release for Master has started. It was released in the US on 6th Jan, followed by Hong Kong on 12th Jan. It would be distributed by Clover Films in Singapore on 13th Jan with subsequent release in a total of 31 countries.

Golden Slumber, is a remake of the 2010 Japanese film of the same name based on the novel by Isaka Kotaro. The film is about a mail courier who is falsely accused of assassinating a presidential candidate. Top Korean A-Listers, Kang Dong Won would play the role of Kim Gun Woo, the mail courier while Han Hyo Joo would play Sun Young, his first love and a traffic news announcer. Filming for this movie is expected to start in 1Q17, and it would likely hit the big screen by June 2017.
Similar to Master, this film would be produced by ZIP cinemas and distributed by CJ Entertainment.
With the proven track record, we expect the movie to be profitable and expect a conservative base case of 4m ticket admissions, which would likely yield profits of USD2.6m for SEG.

We believe that FY17F would be the inflection point for SEG back into strong profitability, driven by earnings from Master which is already yielding operating profits of USD4m based on current admissions. This is coupled with the release of Golden Slumber and other movies slated for FY17F as well as the disposal of OPUS Pictures in 2016.
The number of movies produced by Zip Cinemas would likely increase going forward on the back of the success of The Priest (2015) and Master (2016).
We maintain our BUY recommendation with an unchanged DCF-based TP of SGD0.32 (WACC: 6.3% and TG: 1%) implying a 18x FY17F P/E.
Key risk include weaker-than-expected reception of movies produced directly the company.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-09

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.320 Same 0.320