Fourth IP on the Way for a Rebranded Cityneon

There is nothing more frustrating for Ron Tan than the public’s level of knowledge (or the lack of it) of his company, but it is also the catalyst that is pushing him to transform the firm as it prepares to complete its fourth intellectual property (IP) by the first half of this year.

The executive chairman and group CEO of Cityneon Holdings is on a quest to break away from perceptions formed of the company with others in the same industry like Pico Group and Kingsmen Creatives.

“We’re trying to move towards creative and design, so that people understand that we’re no longer in the category. In our industry, they like to call us the “Phua Chu Kang”. We have Pico, Cityneon, and Kingsmen. I like to say that ‘C’ already left the PCK category,” Mr Tan told The Business Times in a recent interview, drawing reference to the popular Singa-porean sitcom character in the 1990s.

Cityneon, in its results announcement last month, said that it will continue to align the group’s traditional core business with the intellectual property rights (IPR) business, especially in the area of creative and design.

The company, which started out as a supplier of electrical appliances in 1956, now has five business units: exhibition services, experiential environment, event management, interior architecture, and IPR, its strongest performing segment.

For the full-year ended Dec 31, 2017, Cityneon’s net profit jumped 160 per cent to S$17.4 million. Gross profit increased 84 per cent to S$63.8 million in FY 2017, and gross profit margin rose to 54.7 per cent from 36 per cent a year ago.

Revenue in FY 2017 increased 21 per cent to S$116.7 million, of which the IPR segment saw a 187 per cent increase to S$50.7 million in sales compared to the year-ago period. Revenue in the other segments decreased.

Expansion in the IPR business has been aggressive. The group’s third and latest IP acquired in August last year granted it the full global rights to Jurassic World Exhibition after a deal was made via a sale and purchase agreement to acquire all of JP Exhibitions LLC for US$25 million. This allows Cityneon to make full use of the exhibition’s IP in partnership with Universal Studios.

The first two IPs secured by Cityneon’s wholly-owned subsidiary Victory Hill Exhibitions were Disney’s Marvel Avengers S.T.A.T.I.O.N. and Hasbro’s Transformers Autobot Alliance.

On its fourth IP, Mr Tan said that it “won’t be anywhere close to what we did for Jurassic”.

“For the recent (IP in) Jurassic, people assume that I’m going to buy another company, but people forget that Avengers and Transformers (were) not purchased. They were developed by me. My fourth (and) fifth IP can be developed here,” he said.

Cityneon announced last August that it recruited the former director of creations at Cirque du Soleil, Welby Altidor, who is now group chief creative officer of the company.

Mr Tan told BT that he is growing the current workforce dedicated to creative and design from 7 per cent to about 50 per cent, but would not disclose who else he is hiring.

BT understands that Cityneon is currently close to finalising a deal with a global design and production company and the additional manpower for Cityneon’s design team will come from that company.

Recently, Cityneon had managed to snag US$60 million in funding for mergers and acquisitions and its fourth IP, which Mr Tan said was no mean feat.

“If you look at the size of the company, we are only over S$200 million in market cap. How do we raise US$60 million? We are able to (based on) the relationship my financial partners have in China and Hong Kong.”

Still, the achievements of Cityneon don’t seem to be reflected in its trading multiples today, Mr Tan added. He believes that the company, which has grown about 15 times since he joined in the second half of 2015, is under-valued in the stock market.

“Name me one company in Singapore that works with Disney, Marvel, Universal, Hasbro. These huge companies give us their brand and we produce the experience around these brands. For that matter, name me one in Asia. You cannot! I find it excruciatingly painful,” he said.

In an equity research report dated Feb 28, DBS Group Research issued a “buy” call for Cityneon and pinned a target price of S$1.45 based on a price-to-earnings (PE) valuation peg of 14.4 times, which is at a “20 per cent discount to peers’ average PE of 18 (times)” on FY 2018 forecasted earnings.

On March 1, UOB Kay Hian similarly issued a “buy” call on the stock and set a PE-based target price of S$1.55 that was pegged to peers’ 15.4 times 2018 forecasted PE. At current levels, the stock is trading at a bargain of 9.8 times 2018 forecasted PE, the brokerage said.

On Friday, Cityneon closed one Singapore cent higher at S$1.03.

“(Pico and Kingsmen) are trading around 11 or 12 times. They’re giving us almost the same multiple as them. Our multiples have to go up because a creative and design company trades at a different multiple. It’s very obvious that the financial industry doesn’t understand who we are,” Mr Tan said, adding that Cityneon should be trading at a PE ratio of 20 to 25 times.

He did, however, acknowledge that it was “partly our fault” that Cityneon’s branding is not visible enough.

“I spend a lot of time focusing on the business, the fundamentals. Last year, I had to spend so much time on (a) corporate exercise. This year, we built up our management team. (The company) was spending a lot more time on the road so that people understand who we are. You cannot blame the investors. It takes time and I believe the time will come,” he said.

Mr Tan is aiming high, setting an ambitious target of bringing the company to S$1 billion in market capitalisation, but that means that big changes have to be made to enhance the appeal of the company.

As a result, Cityneon is undergoing a major rebranding exercise that is expected to finish by June this year. He tells BT that for this move, there will be “someone external recommended by a government agency, someone who’s really known”.

Cityneon’s management team will also be expanding, and although there are scant details, Mr Tan is sure that he will retain his executive chairmanship and CEO position post-rebranding.

“It is my baby. I am here to see through this change and transformation. This rebranding will then tell what Cityneon is going to be.”

Some considerations in this move include a possible change in logo or even the name of the company, but Mr Tan is not of the opinion that there is a need to alter the latter.

“To be honest with you, I she bu de (“can’t bear to” in Mandarin). It’s an old brand name that’s been around for many years. We have to change how we position ourselves, how people know who we are. That’s what I want to achieve,” he said.


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