Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Above estimate: The 4Q11 net profit was Bt81m, down 68% YoY and 63% QoQ, but 35% above our estimate, due to the absence of a deferred tax provision (we had assumed a Bt70m provision). Core earnings also missed our expectation, due to higher-than-modeled SG&A and lower-than-anticipated other income. Gross profit exceeded our estimate by 4%, as ticket and onscreen ad revenues exceeded our assumptions.
Results highlights: There was only one extra item in 4Q11—a Bt2m trading loss on SF shares. Core profit tumbled by 33% YoY and 60% QoQ, due to the flooding, which impacted all MAJOR’s business units, except ticket and concession sales, which both posted 6% YoY growth, despite 123 screens being shuttered.
Bowling and home entertainment revenues fell by 31-32% YoY, while space rentals slipped 4% YoY. Onscreen ad revenue, surprisingly, jumped 24% YoY, despite the flooding—major clients didn’t cut ad spend with MAJOR. In gross profit terms, ticket sales and onscreen ads posted the strongest growth—ticketing up 15% and onscreen ads up 27% YoY—while the gross profits of bowling, space rentals and home entertainment plunged by 51-60% YoY.
Outlook: Management guides for a 35% YoY admission sales rise for Jan, led by ATM Er-Rak Error. It targets increasing the number of 3D-enabled screens from 130 at YE11 to 200 by YE12. For FY12, MAJOR expects a 15% YoY rise in sales, a 10% increase in onscreen ad revenue, 5% same-screen-sales-growth and 3-5% average ticket price expansion. GM will fatten in FY12, due to lower film-hire costs for upcountry screens. A remote ticketing deal with CPALL should boost sales because of the extra convenience of using 7-Eleven stores to book seats ahead of time. MAJOR will reduce its stake in MPIC and wind up its DVD/VCD business. 
What’s changed? We have upgraded our net profit forecasts for FY12-13 by 7% to factor in expanded expectations for ticket and onscreen ad revenues this year and next. As such, our YE12 target price rises by 8% to Bt20.50.
Recommendation: Our BUY rating stands. The weak 4Q11 profit is behind us. FY12 earnings will rise strongly (net profit up 14%, core profit up 23%) underpinned by solid FY12 movie line-up.