Brokers’ take

Compiled by Lee Meixian

SPACKMAN ENTERTAINMENT GROUP | BUY

MAY 16 CLOSE: $0.072

TARGET PRICE: $0.10

RHB Research, May 16

We maintain "buy", while we cut our target price to 10 cents from 20 cents to imply a FY18 price-to-earnings ratio of 14 times.

Spackman's disappointing Q1 2018 was mainly due to the absence of profits recognised from its blockbuster movie, Master, and the underperformance of Golden Slumber. As a result of the latter, we slash our FY18 net profit forecast by 33 per cent.

However, with yield-accretive acquisitions last year boosting the company's recurring income - while another potential hit, Sovereign Default, is set to hit the big screen in H2 2018 - we keep our positive outlook, premised on a future comeback.

We remain positive on Spackman's outlook - based on an anticipated recovery in its financial performance.

The key risk to our call is the volatility in profitability, as Spackman's performance depends on the audience's reception of its movies.

We expect management to continue adding more recurring complementary revenue streams in the future to reduce its reliance on the more unpredictable movie-making business.

BEST WORLD INTERNATIONAL

| HOLD

MAY 16 CLOSE: $1.29

FAIR VALUE: $1.39

CGS-CIMB, May 15

Best World's first-quarter headline net profit of $5.6 million was at only 9.2 per cent of our and 8.9 per cent of Bloomberg consensus full-year estimates of $61 million and $63.4 million respectively.

Earnings were skewed by delayed recognition of some China takings, as Best World is still in the process of transitioning its China operations to a China wholesale business model. Best World guides for better China prospects in H2 2018 and is cautiously optimistic about stable Taiwan revenue year-on-year.

Q1 revenue fell 30 per cent year-on-year to $25.4 million largely due to the plunge in Chinese revenue to $6.8 million on the back of delayed revenue recognition with the conversion of its China operations to a wholesale business model.

Its performance in the mature market of Taiwan was also weaker, with revenue falling to $12.1 million as sales growth tapered amid the lower retention rate of its direct selling membership base and reduction in price promotions for core products.

We reduce our FY18-19 net profit forecasts as we become more conservative on Best World's near-term prospects. We downgrade to "hold" with a lower target price of $1.39.

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