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3 Things I Like About Spackman Entertainment Group
Corporate Digest | 10 September 2014
By: Louis Kent Lee
Articles (199) Profile

Like Korean Films and all stuff related to Korean? Yes. I know. Too many. It is difficult resisting korean dramas and movies. I find it hard to resist their soju watermelon and Yangnyeom Chicken as well.

Less than a quarter ago, a company that primarily produce, present and invest in theatrical films in Korea got listed on the Singapore Exchange, and its price basically flew off the charts like a rockstar.

This company is called Spackman Entertainment Group (Spackman). Comparing its listed price of $0.26 to that of what it’s trading at now (time of writing) $0.355, this represents a 36.5 percent increase.

In fact, its price hit a peak of $0.525 (102% rise!) on 29 July, a couple of days after it got listed.

So let’s break this bad boy down and unveil the things I like about this company.

1. Great Track Record Of Making Films That Are Profitable

Film production is no joke, especially when you take into consideration of your production budget.

More often than not, it is not a guarantee that every film will be profitable. Therefore, track record of production companies, and of course, movie directors of such companies are key things to look out for.

Zip Cinema (Zip) and Opus Pictures (Opus), both of which are wholly owned by Spackman, are two of the most recognised film production labels in Korea.

Both companies have consistently produced films that are within the top 10 grossing movies in Korea in 2012 and 2013.

On average, 75 percent of films produced under these two film production labels are profitable.

2. Strong Value Chain That Hits Multiple Grounds For Each Film

Because of the way Spackman is structured, and how films generally work, a film’s value chain can also be clearly seen.

As you can see, multiple parties are involved in a film, be it production, raising film budgets, investing, distributing, and even screening the film.

On the forefront of things, the “Presenter” (could be OPUS or Zip) will raise the film’s total production budget (generally 40 percent of the film’s budget), and is responsible for raising the rest from other investors.

SEKI, Spackman’s subsidiary involved in making early investments into films produced by Zip Cinema and Opus Pictures, will then come into the picture for the “Investor” role in this relationship (Normally another 40 percent of the film’s budget comes from investors).

The remaining 20 percent is usually raised from financial institutions, banks and private investors.

When the film is released, “Theatre operators” generally keeps 50 percent of gross takings, while the remaining goes to the “Distributor” of the film.

*Note that the dominant distributors in Korea also own and manage large chains of theatres in Korea

The “Distributor” will take a distribution fee of 10 percent of the gross takings and then pays the remaining proceeds to the Presenter, who is responsible for distributing the next round of proceeds that remain.

From this sum, the Presenter will take two percent of the total production budget, and then distributes it to pay off the investors, and pay itself the Presenter Fee.

If there are remaining proceeds at the last layer after all these knock offs, the film is termed “Profitable”.

The Production company’s revenue will come in a fixed production fee form, plus proceeds that are distributed after knocking off fees paid to certain talents with profit sharing entitlements (if film is profitable).

Investors get a cut of this remaining sum again too if there are any.

So for Spackman, films, presented and produced by it, coupled with investments funded by SEKI, will ensure the locking in to a maximum extent of the eventual profits of the film.

3. Healthy Pipeline Of Films

Spackman plans to release four films in 2014, including serving as a presenter for one of them, three films in 2015, and two films in 2016 (Presenter status for films in 2015 & 2016 is still not known).

On an aggregate probability model of how profitable their films are (75 percent), we are looking at close to seven films out of the nine films that should be profitable within 2014-2016.

Sounds like music to me in terms of what revenue can bring in, especially when you look at their revenue segments.

Source: Company

Both revenue segments and profits have been rising, largely due to released film’s performances which led me to believe the catalyst for Spackman will lie in films released that are profitable.

Spackman is currently trading at a high PE of some 46 times, largely due to the current price acceleration coupled with a positive EPS in 2013 compared to a loss per share in 2012.

I’d deem this valuation multiple rudimentary for now and will be watching metrics from the release of films and the sustainability of the profits of its segments seen in the chart above.

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.

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