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Thursday, December 28, 2017

PUC - Implications Buying 33% PictureWorks Stakes

About The Deal

It is acquiring a 33% stake in Pictureworks Holdings Bhd for RM52.8 million in an effort to diversify into the digital imagery business.

The deal is deemed a related party transaction, as PUC’s CEO Cheong Chia Chou is also a major shareholder in Pictureworks. Other vendors of the stake in Pictureworks include Tan Pee Tee, Cheow Sook Mei, Pang Meng Chin, Chua Teck Kwang and Superb Go Sdn Bhd.

Under the deal, PUC will issue 64.6 million new shares — or slightly over 4.5% of its enlarged share PUC buys into leisure site photography firmcapital — at 32.2 sen per share or RM20.8 million, while the balance of RM32 million will be paid on a staggered basis when Pictureworks meets its profit guarantee as outlined in the agreement.

Pictureworks provisions imagery capture and distribution platforms for major theme parks and other leisure and entertainment sites including the Shanghai Disney Resort in China, Hong Kong Disneyland Resort, Singapore’s Gardens by the Bay, Legoland Malaysia, and Kidzania Kuala Lumpur. It also holds the international licensing of imagery systems including Harry Potter: The Exhibition and Game of Thrones: The Touring Exhibition, among others.

Currently (Dec 2017), the Pictureworks group’s imagery system services are being offered in more than 30 sites.

The 33% stake in Pictureworks is valued at between RM57.05 million and RM73.3 million by FHMH Corporate Advisory Sdn Bhd.

For its financial year ended Dec 31, 2016 (FY16), Pictureworks bagged a loss after tax of RM36.74 million on revenue of RM42.31 million, mainly dragged down by delay in the opening of the Shanghai Disney Resort to June 2016, from the initial target of November 2015.

Meanwhile, Pictureworks’ estimated profit after tax (PAT) for FY17 was at RM24.57 million, with an expected revenue of RM55.99 million.

Cheong has guaranteed that Pictureworks will achieve a PAT of RM14.8 million in FY18 and another RM20.5 million in FY19. Any shortfall will be compensated by Cheong.

PUC expects that moving forward, its share of earnings from its 33% equity interest in Pictureworks may contribute 25% or more of the net profits of the PUC group and/or may result in a diversion of more than 25% of the net asset of the PUC Group.

The Impact on PUC’s Earnings

By all calculations PW (Read Bottom ‘About PW) is a lot bigger and "more successful" than PUC's original biz model.

Owing to the fact that the younger brother had to take over PUC, it is highly unlikely he will have the time to go running around Asia to run two companies. Just look at the corporate announcements over the last 9 months (Till Dec 2017), PUC has bought or enter in joint ventures or partnerships that basically re-emphasised PUC's change in business direction to that of technology (social marketing, payment systems, social apps).

The above purchase deal is said to be at a low valuation, which will bode well for PUC... by virtue of having the same owners, PUC can account for PW's earnings.

It is worth nothing that there had been many bankers proposing to list PW in Hk and Shanghai, even at a valuation as high as USD250-400m, but the owner (PUC’s CEO Cheong Chia Chou) thinks that is undervaluing PW and is willing to wait for USD1 billion ... if PUC does buy a certain percentage of PW, that would by the owner a lot of time to wait for that USD1 billion valuation;

PUC is the image/photography partner for two Disneylands and  Kidzanias for nothing.

Users will know that its not just a photography tool, its interactive and can convert files into moving images, and can intersperse "active backgrounds" for pictures. The app can easily win over a lot more theme parks/important sights/towers/entertainment outlets/recreational sites and parks.

Moving ahead the adoption of the tool is likely to be via cloud computing and the owners of these recreational places basically pays a high rental fee to use the app. They will too because it brings in more revenue, profits and enhances the overall enjoyment and users' experience.

About Pictureworks …


PUC’s CEO Cheong Chia Chou has joined the big leagues by pioneering a world class company providing digital imaging and multimedia services to international theme parks and resorts.

In 2015 and 2016, the company, Pictureworks, scored big when it secured corporate alliances with Shanghai Disney Resort and Hong Kong Disneyland Resort as the official photo imaging service provider to capture special moments for visitors.

It won the tender against well-known industry incumbents, including Japanese multinational photography and imaging company Fujifilm, and global technology company KodakAlaris.

Pictureworks is now ranked the top five in the world and top three in Asia. Headquartered in Singapore, it has offices in Malaysia, Hong Kong, China and Japan. It operates in more than 15 countries.

Its core product, PictureAir, supports theme parks, attractions and events by providing imaging services where the visitor’s ticket serves as the identity to associate photos taken by photographers and ride cameras. The visitor can then view and purchase photos on their mobile phones almost instantly, create albums and make prints, as well as share digital copies with others.

As of two years ago (2015), Pictureworks ran photo imaging operations in 62 projects in the leisure industry, consisting theme parks, attractions and family entertainment outlets. It also operates in 11 of the 22 KidZania outlets across the globe and LEGOLAND Malaysia. Its latest project was LEGOLAND Japan located in Nagoya, which opened in April 2017.

It is learnt that in 2016, an international bank valued Pictureworks at several hundred million ringgit.

Cheong, who is the founder and major shareholder, says the company has operations in over seven countries, capturing 100 million smiles annually.

An initial public offering has always been in the plans for Pictureworks as it seeks to achieve a larger footprint in the region. It’s a no brainer that it would need more capital investment for such expansion in the near future. But this may not immediately materialise as the 42-year-old Cheong is in no hurry to list the group.

Cheong says if Pictureworks goes for listing, it would do so at a minimum target valuation of US$1 bil (RM4.28 bil). And when it does, its first choice will be to list in Asia. There have already been offers to do so in China.

Over the past three years, Pictureworks has received offers of takeovers from large multinational corporations, but Cheong has no intention of selling if the proposal lacks merit.

He believes an IPO would ideally help the group’s dynamics and ensure a better future as it plays an important role in terms of business succession, bringing in the next generation of leaders as well as keeping and attracting good talent.

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