SINGAPORE (April 6): RHB Research is maintaining its “buy” call on Spackman Entertainment following its recent acquisition of Frame Pictures, a Korean equipment business, for S$1.12 million and 0.5 million shares of its associate, Spackman Media Group (SMG).
Its target price, however, has been lowered to 27 Singapore cents from 32 Singapore cents previously due to the group’s dilution stemming from its latest placement of 64.2 million new shares.
In a report on Thursday, RHB analyst Jarick Seet says he believes the group’s acquisition of Frame Pictures is positive and would be earnings-accretive, in addition to providing Spackman a recurring business stream on top of its current movie production businesses.
The deal further adds more credibility to SMG’s value per share, which the analyst estimates to be between US$4.70 (S$6.60) to US$8, prior to its intended listing on the Hong Kong Exchange (HKSE) in 2018.
Seet also projects Spackman’s earnings to spike in 1Q17 as most of the profits from its Korean film, Master, is likely to kick in by then.
(See also: Spackman breaks even with movie Master)
“Most of the profits from Master would actually be booked in 1Q17 and not in 4Q16, due to the timing of the movie hitting the big screens. Also, as Spackman is not the movie’s presenter or distributor, it would only be able to get a share of the movie’s consolidated earnings after the screenings end,” he explains, adding that he expects Master to generate around US$5 million of profit for the company.
The release of Spackman’s next potential hit, Golden Slumber, as well as other movies slated for release this year, would continue to help Spackman generate strong profitability in FY17, he adds.
“With [proceeds from Spackman’s recent new share issuance], coupled with the income received from Master, it would be able to invest and produce more movies, going forward. In addition, Spackman would also continue to aggressively pursue similar strategic acquisitions to develop a more consistent revenue stream,” concludes the analyst.
As at 11:41am, shares of Spackman are trading 1 Singapore cent higher at 17 Singapore cents.