Why holding onto IP rights could boost Cityneon Holdings' earnings

Earnings per share could grow by as much as 136% in 2017.

Cityneon Holdings' move to focus on its Intellectual Property (IP) segment could do well for the firm, KGI Research said.

According to its analysis, earnings per share (EPS) could grow by as much as 136% in 2017 and 37% in 2018.

Its wholly-owned subsidiary Victory Hill Exhibitions (VHE) currently owns three exclusive IP rights and licences to showcase Marvel Avengers S.T.A.T.I.O.N., Hasbro Transformers Auto-bot Alliance and Jurassic World: The Exhibition using cutting-edge technologies.

KGI Research said VHE earns lucrative high-margin licensing fees and royalties from operators, thanks to the franchises' loyal fan bases. It also announced its debut in Chongqing, China and Moscow, Russia.

Whilst its operations are highly mobile, the operating risk is minimal because of VHE's network of operating partners.

"We like the fact that fixed licensing fees make up the bulk of its revenues, and are resilient against uncertain visitorship," KGI analyst Nicholas Slew said.

Moreover, a lot of its expenses are attributed to one-off costs in the production of its sets. These contribute to 80-85% operating margins.

Here's more from KGI Research:

VHE has come a long way since its first exhibition.

Today, it has a total of five operational exhibition sets and has held many successful exhibitions in various locations globally.

With a strong track record in this business, as well as an extensive network of international operating partners, VHE has gained credibility in its ability to successfully scale its business.

We initiate coverage on Cityneon with a BUY recommendation in view of its growth potential and high margin, low-risk business. We assign a target price of $1.38 to Cityneon, based on a conservative 2018F P/E of 15.1x.