Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Investment thesis: After attending the “Coming Attractions” event arranged by five major studios and distributors, we believe the 2012 movie line-up will be stronger than was last year’s—more blockbusters and 7.5% YoY industrywide box office growth. Our BUY rating on MAJOR stands, premised on: 1) a post-flooding turnaround, 2) scope for FY12 earnings upside from reduced film-hire costs, 3) a stronger FY12 movie line-up and 4) a discounted valuation.    
FY12 movie industry growth of 7.5%: A Sony executive forecasts Thai industrywide 2012 box office receipts at Bt4.2bn, up 7.5% YoY, driven by a higher average ticket price (ATP) as a result of more 3D screenings, more screens/theaters and a stronger 2012 movie line-up. In FY11, only 10 films grossed more than Bt100m. This year, we expect 13 blockbusters to gross above Bt100m, among them—MIB III, G.I. Joe 2, The Amazing Spiderman, Dark Knight Rises, The Bourne Legacy, Resident Evil 5, Twilight 4.2 and 007 Skyfall.
4Q11 receipts dampened by flooding: We estimate a Bt60m net profit for 4Q11, down by 77% YoY and 72% QoQ. There will be a Bt70m one-off deferred tax provision for the quarter. Stripping out extra items, we project a core profit of Bt130m, up 5% YoY but down 37% QoQ. The flooding impacted almost all business units in 4Q11—ticket sales, space rentals, bowling and DVD/VCD distribution. Only onscreen advertising revenue appears to have been relatively unaffected.
Upside from reduced film-hire costs: MAJOR has successfully negotiated with all the major studios to cut its film hire costs across-the-board by 1% (from about 49% of takings to around 48%). That strongly suggests upside to our FY12 earnings model. Furthermore, the firm claims that its rental cost for Mega Bangna (16 screens, to open in May) is a revenue-sharing rate of below 10%. In our model, we assume a mean revenue-sharing rate of 15%, so the low Mega Banga rate should mean some upside to our GPM assumption.
YoY jump in box office takings for Jan: We estimate Bt363m in box office revenue for Jan, up by 34% YoY and 2% MoM, led by ATM Er-Rak Error, Underworld 4, Sor Kor Sor Sweetie and Real Steel. Clearly, post-flooding recovery momentum has been sustained from Dec through Jan.
Outlook
FY12 industry growth of 7.5%: Sony’s GM for international film distribution, Mr Ratchot Dhiraputra, forecasts Thai industrywide 2012 box office receipts of Bt4.2bn, up 7.5% YoY, driven by a higher average ticket price (ATP) as a result of more 3D screenings, more screens/theaters and stronger 2012 movie line-ups by the five major studios/distributors—Sony, Walt Disney, M-Pictures, Warner Brothers and UIP.
13 blockbusters in FY12: In 2011, only 10 films grossed in excess of Bt100m—Transformers 3 (Bt294m), Harry Potter 7.2 (Bt202m), King Naresuan 3 (Bt201m), The Fast & Furious 5 (Bt148m), Sud Khet (Bt120m), Ladda Land (Bt113m), MI 4 (Bt108m), Pirates 4 (Bt108m) and Twilight 4.1 (Bt105m). This year we expect 13 blockbusters to gross over Bt100m each—ATM Er-Rak Error (Bt135m so far), King Naresuan 5, MIB III, G.I.Joe 2, The Amazing Spiderman, Dark Knight Rises, The Bourne Legacy, Total Recall (2012), Resident Evil 5, Twilight 4.2, 007 Skyfall, The Hobbit and World War Z. As such, we forecast 5% YoY industrywide 2012 box office revenue growth for the top 35 grossing films to Bt2.86bn.