SI Research: Cityneon Holdings – How High Can The Avengers Lift Them?

Marvel Entertainment’s Captain America: Civil War, one of the most anticipated films this year, hit local cinemas two weeks ago, and started showing in domestic America cinemas one week after. Featuring popular characters such as Captain American, Ironman and Spiderman, the movie has thus far made US$678.3 million in worldwide box office, ranking fifth on the largest debut in film history for opening weekend earnings, and well on its way towards the US$1 billion club.

Whether you were #TeamCap or #TeamIronMan, or have no interest in superhero fiction films at all, there is no denying that Marvel’s superhero titles are massive cash generating assets.

Investors who wish to get a piece of the action would already be looking at getting vested in The Walt Disney Company (Disney), which is listed on the New York Stock Exchange and wholly-owns Marvel Entertainment as well as most of its superhero studio rights.

However, investors who are more inclined to invest in just local companies can still get a slice of the pie – through Cityneon Holdings (Cityneon).

Who Is Cityneon?

In brief, Cityneon is an exhibition production and distribution company focused on delivering engaging, educational and interactive exhibition for the global market. Historically, the group has a good track record in creating and delivering innovative and captivating content through their four business segments: Exhibition Services, Experiential Environment, Event Management and Interior Architecture.

Cityneon’s portfolio includes many projects, which residents in Singapore would be familiar with. These include Singapore’s Golden Jubilee celebrations by the bay, the 28^th SEA Games, as well as interior architecture for several retail shops like Pedro, Charles and Keith and merchandise stores located within the Universal Studios Singapore.

Its specialty in Experiential Environment has also allowed the group to bag several exclusive projects like the Transformers Attraction and Ancient Egypt Zone in Universal Studios Singapore, as well as Adventure Cove and SEA Aquarium in Resorts World Sentosa.

Avengers Assemble

In September 2015, the group acquired Victory Hill Exhibitions (VHE), who owns the intellectual property rights and licenses to use the Avengers STATION and The Transformers Experience franchise to open exhibits that immerse audiences in the world of Marvel Comics and the autobots, thus adding Intellectual Property as its fifth business segment.

In 2013, VHE sealed an exclusive multi-year deal with Marvel Entertainment to produce and deliver engaging and interactive exhibitions to the global market, and combining with advanced technology used in the exhibits, Cityneon now has essentially established itself in a scalable business model that has relatively high barriers to entry.

VHE spent more than a year and more than US$8.5 million to develop and produce the original Avengers STATION exhibition. The group currently has three completed exhibits globally, two of which will be permanently housed in Las Vegas while the other is a travelling exhibit that is currently in Paris (started operations in April 2016). At the moment, an additional travelling exhibit is also under construction in China.

VHE’s business model can also be considered highly scalable as its earnings are directly correlated with the number of sets the company has. Furthermore, outside of the US, VHE operates on a relatively low execution risk model which they will find partners in the target region.

For instance, in April 2016, VHE entered into a non-binding term sheet with Beijing Starclouds Entertainment Development to host and operate the Transformers Experience touring exhibitions, whereby Starclouds will host and operate the exhibitions for a period of two years on an exclusive license.

Strong Movie Pipeline Filled With Opportunities

Marvel has been opened about its plans on churning out more movies and has already planned for more movie releases all the way to 2020 and beyond. Transformers on the other hand, is a relatively newer franchise as the first Transformers movie was only released in 2007 and since then there have been four movies with another four planned till 2019.

Furthermore, Disney also owns a substantial amount of other franchises apart from the Marvel franchise, sitting at the top as the world’s largest global licensor and recorded global licensed product retail sales of about US$45.2 billion in 2014.

With an established relationship with Marvel, coupled with its good track record and technology to cater to client’s needs, porting its business model to other franchises of Disney would be an exciting possibility and Cityneon is very well positioned in this regard.

Valuation

With a share price of $0.64 as at 10 May, Cityneon’s share price has doubled year-to-date and is trading at a new 52-week high, way surpassing the performance of the Straits Times Index which is down 3.3 percent in the same period.

Although Cityneon’s share price has run up quite a bit, we opine that the acquisition of VHE, as well as the exhibitions planned for Avengers STATION and The Transformers, positions the group well to tap on the overwhelming popularity of their respective films to drive its growth.

Though Cityneon’s story is a relatively simple one, where projected growth comes from new acquisitions, investors should note the gestation period needed for new exhibits. As subsequent exhibitions are still being constructed, additional contribution would likely only come in the subsequent quarters. With a street target price of $0.72, it still translates to a potential upside of 12.5 percent for Cityneon even at current levels.