By now, most in the local news would have read of the liqudation of Cathay Cinemas in Singapore. MM2 Asia is the parent company of Cathay via MMconnect. Share prices are lower post announcement of this news.
The current question begets is the company worth as an investment at 0.3 cents, having fallen 99%.
My view is not yet and further fall in share prices may continue.
What Businesses Does MM2 Has?
Post liqudation of its Singapore Cinema business, the company has 03 unprofitable business and 01 profitable business:
(i) 39.2% stake in Unusual (market cap: $71.5 million, unprofitable)
(ii) 29.9% stake in Vividthree (market cap: $7.9 million, unprofitable)
(iii) Cathay Malaysia (also unprofitable)
(iv) Movie production/content (earns about $5 million excluding impairment losses)
Overall, MM2 has many segments that are loss making and not paying dividend. My view is that MM2 Asia should focus on selling off the unprofitable segments and focus on its roots and what it does best- making movies. The sale of its stakes will raise cash proceeds of $31 million and this amount will help a lot in its debt heavy balance sheet.
MM2 Asia Balance Sheet- Heavy in Debts
Latest balance sheet shows $217 million in debt and $9 million cash/$151 million in other current assets which are mainly movie project costs that MM2 accountants believe can be recovered at full cost. I highly doubt it will happen and likely a a 70% recovery rate is only achievable.
Hence net debt should be about $102 million.
The weighted cost of debt is 7% interest and a large portion is a 6% bond given by Tan Boon Seng.
Operating cashflow wise, MM2's is rather lumpy and it is quite hard to estimate the cashflow. However, given the profitability of the its movie production unit, I believe MM2 Asia can use the profits to repay its debt (likely a 20 years track to slowly repay debts until a manageable level)
An intersting aspect of the $54 million bond structued with Tan Boon Seng is that MM2 Asia will start to repay him $10 million at the end of each year from 2027 to 2031. Given the operating status of MM2 Asia, all their cashflow will be focused on repaying Mr Tan until 2031. Current shareholders should not expect any dividend owning this stock until at least 2032.
What is in it for Shareholders
To be honest, nothing is left for shareholders in its current shape. All its cashflow and disposal will be used to repay its debts maturing each year. If the stakes of Vividthree and Unusual are not encashed, it is either the company will go bankrupt or more share placment/rights which will further dilute shareholders.
Where there is "claimed" equity of SGD$5.9 million (0.1 cents book value per share), I doubt the value of its assets in the balance sheet can be fully recovered because many are due to movie production costs and intangibles which MM2 accountants have overstated to an extent. The company is likely in net negative equity which means negative book value per share. Other current assets are likely only recoverable at 70% of $150 million, which to me suggests impairment of $45 million, putting MM2 Asia at negative equity of $40 million.
Don't have too much hope.
It is likely existing shareholders will be diluted further because MM2 Asia needs cash placement/equity injection. My view is that $30 million in cash is needed for the company to survive in the next 2 years. The best solution is to sell its stake in 02 other listed companies, however given the stubborness of management to not hurt their sister companies and the slowness in restrucuturing, the sale won't happen in time and existing shareholders will be diluted further.
For existing shareholders, a 0.3 cents is a good opportunity to sell. 0.1 cents is where we will see the company being traded at. If the company does not sell its stake in other listed companies, things may get worse from now.
No comments:
Post a Comment