• Under the terms of the acquisition, mm2 will consist of an initial signing fee of S$6m payable upon finalising the sale and purchase agreement.
• A maximum first tranche is payable in Jan 17, consisting of S$4m in cash and S$6m in shares based on the net profit after tax achieved by UnUsUal group for FY16.
• The final payment of maximum S$10m will be payable in Jan 19 based on pre-set net profit targets for 2016-18.
• Assuming a forward 2016F net profit after tax of S$5m, mm2 will be making an earnings-accretive acquisition for 51% of the business at 10.2x 2016F PE.

• The heart and soul of the UnUsUal group of companies is in the rental and operations of sound, stage, lighting and video equipment in Singapore. They are a market leader in this segment with a client list which includes Singapore F1 Grandprix, the National Stadium and the Youth Olympic Games.
• We believe that their background and expertise in the technical department has given the company the platform to expand into concert promotion and production, as they have less reliance on third-parties and might even be more competitive in terms of pricing their services.
• From a strategic point of view, we are positive on the acquisition as it will propel mm2 into becoming the largest entertainment group in Singapore with synergistic business activities, a more diversified revenue stream and stronger network in Hong Kong and Taiwan.

• Our channel checks show industry gross margins to be around 40% and net profit margins to be around 25%. Given these numbers, our estimates indicate UnUsUal group&rsquo s turnover to be around S$20m for FY15 using an NPAT of S$5m.
• Assuming our channel checks are accurate and the acquisition is finalised, we would expect an improvement in net margins for mm2 for 2017 due to the full-year profit contribution from UnUsUal Group.
• We expect the acquisition to be completed in about 12-13 weeks or by the end of Apr 16.

• SGX has approved the total placement of 6.35m shares to Hesheng Media, Apex Capital and Maxi-Harvest Group for a combined consideration of S$5m or S$0.7872 per share. The proceeds and a portion of the existing cash balance will provide the necessary cash to fund the initial signing fee.
• As the purchase agreement has not been finalised, we have not incorporated the earnings attributable from the acquisition and kept our forecasts unchanged.

VALUATION

• Riding on growing demand and support for local production gaining traction overseas
• High margins business model new revenue streams to strengthen competitive edge and build recurring income base
• Spreading its wings in China, one of the world&rsquo s most lucrative movie markets to support growth
• Initiate with BUY, S$1.05 TP

• mm2 Asia (mm2) is poised to ride on the growing demand for local production and will continue to grow its presence in Taiwan, Hong Kong and China, by leveraging on the business relationships it has established.

• We expect mm2 to grow at EPS CAGR of 40% for FY15 to FY18F. To support this growth, mm2 intends to spread its wings to one of the most lucrative movie market &ndash China.
• The group has already co-produced several productions in China since 2013 and is currently working on a few movies in China. Chinese films generally have bigger budgets and better margins than local productions.

• Besides movie production and distribution which offers high gross margin of about 40% to 45%, mm2 recently acquired five cineplexes in Malaysia and some related businesses.
• Cinemas will provide a source of recurring income to the group and cost savings in the longer term, as mm2 usually has to pay about 50% of its gross intake receipts for rental of cinemas.
• EBITDA margin for cinemas is about 15%.

• mm2 is trading at 23x FYMar16F PE and 14x FY17F PE, based on its enlarged share capital, compared to peers&rsquo 27x FY16F PE.
• Taking a 30% discount to peers given its much smaller size, we arrive at a target PE of 19x to derive our target price of S$1.05 on FY Mar17F EPS.
• The stock offers a potential upside of 36%, and it trades at an attractive PEG of 0.31x.