China appears to have controlled Covid-19 - more or less - enabling the population to return to some degree of normal. Hence, China&rsquo s entertainment business is in a way, a proxy to Covid recovery play. And not just any kind of entertainment business, such as sitting for a couple of hours in a cinema, but a totally immersive experience where people can pretend to be the Black Widow, or Spiderman or Iron Man. Currently unlisted, Cityneon holds the intellectual property (IP) rights to run these immersive exhibitions in China, and other jurisdictions.

 

Sources close to Cityneon indicate that its exhibitions in China are going great guns. &ldquo China&rsquo s numbers are a record since last July,&rdquo the source says.   As at Oct 2020, it has accumulated a portfolio of IP rights for Marvel&rsquo s Avengers, Hasbro&rsquo s Transformers, Lionsgate&rsquo s Hunger Games, Universal&rsquo s Jurassic World and 20th Century&rsquo s Avatar.

 

Cityneon&rsquo s IP portfolio includes artifact IPs and has signed contracts with the governments of Egypt, Peru and China.   Most recently in Dec 2020, Cityneon announced it had clinched the Original Artefacts IP Exhibition &ndash Machu Picchu And The Golden Empires Of Peru. A partnership with the Egyptian government could be announced soon, for an exhibition on Ramses II.

 

Altogether, Cityneon owns and operates nine exhibition sets based on exclusive movie IP rights. The company&rsquo s growth strategy involves adding more move IPs such as Fast & Furious and Harry Potter. Executive chairman and CEO of Cityneon, Ron Tan has said in past interviews that two criteria determine what movie IPs the company can acquire. Box office takings need to be at least US$1 billion, and   the movie must have a sequel.

 

In the wake of Covid-19 and the pandemic, Cityneon&rsquo s historic financials are modest.   FY2020&rsquo s revenue is estimated at US$79 million, gross profit at US$48 million and Ebitda at US$26 million. Net profit for the year is likely to be just US$1 million. However, a big jump is expected for FY2021, with revenue surging to US$215 million gross profit would more than double to US$123 million, Ebitda is likely to rise to US$88 million, and net income should come in at US$45 million.

 

Fixed terms for licensing & royalty fees should provide revenue and earnings visibility. For instance for the Avengers exhibitions, Cityneon has a fixed fee of US$2 million to US$2.5 million a year, with royalty rate of around 11% to 15%, depending on sales of memorabilia.   Similarly, the company has minimum fee guarantees and royalty rates for Transformers, Hunger Games, Avatar and Jurassic World exhibitions.

 

A term sheet seen by The Edge Singapore shows the company plans to raise $135 million through an issue of new shares in a private placement, with a further $40 million from vendor shares. According to the term sheet, pre-financing valuation is $850 million, translating into $3.03 per share. The company has announced it plans an IPO not later than 2Q2023, an a valuation of not less than $1,320 million.

 

The current shareholders of Cityneon are West Knighton with 86.6%, Citic Capital with 10.36%, EDB Investments with 2.28% and Pavilion Capital (a subsidiary of Temasek Holdings) with 0.76%. West Knighton is 20% held by Tan, and 80% held by Hong Kong businessman Johnson Ko.

 

Cityneon was privatised by then largest shareholder Ron Tan in 2019, valuing the company at $318 million. Tan in partnership with Ko offered shareholders $1.30 a share - a record for the stock at that point. This month though, the company is likely to raise $175 million, an amount that could be upsized to $200 million from the private placement taking the company&rsquo s value to $1 billion.