Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Investment thesis: We believe that the expected weak 2Q12 earnings will constitute a one-time hit. As such, we look forward to a 2H12 rebound, led by a stronger movie line-up and a greater contribution from MAJOR’s Mega Bangna branch. Our BUY rating stands, premised on a 2H12 earnings recovery and low multiples.    
Weak 2Q12 box office takings: The top-10 films at the Thai box office in April-June grossed Bt1.1bn, down 12% YoY but up 27% QoQ. The YoY fall is due to the high base set by 2Q11 takings. Only two movies exceeded Bt100m in receipts in 2Q12—Battleship (Bt148m) and The Avengers (Bt252m)—while four broke Bt100m in 2Q11—King Naresuan 3 (Bt201m), Fast & Furious 5 (Bt148m), Ladda Land (Bt114m) and Pirates 4 (Bt108m). MIB 3 failed to do so, while G.I. Joe 2 was rescheduled to FY13. We estimate Bt910m in 2Q12 ticket sales, down 15% YoY but up 13% QoQ.
2Q12 profit tumble: We now estimate a 2Q12 net profit of Bt205m, down by 30% YoY and 12% QoQ (down-graded from Bt250-260m due to a weaker ticket sales assumption). Excluding extra items in 1Q12 and 2Q11, core profit should post a decline of 26% YoY (but rise 27% QoQ), due to a 15% dive in ticket and concession revenues and lower bowling income with the closure of the Rama III branch.
Solid 2Q12 advertising: Onscreen ad revenue should post a rise of 8% YoY. We expect gross profits to report dives of 17% for ticket sales (plus concessions) and 9% YoY for bowling. The gross earnings of rental space and onscreen ads will rise by 7-10% YoY. SG&A should be controlled through cost-saving measures, despite higher electricity costs, a minimum wage increase and Mega Bangna expenses from May.
Stronger 2H12 line-up: We expect rebounds in ticket sales and earnings in 2H12, underpinned by nine blockbusters—The Amazing Spider-Man (Bt142m), The Dark Knight Rises (Bt55m until July 22), Total Recall, The Bourne Legacy, Resident Evil 5, Bond 23, The Twilight 4.2, King Naresuan 5 and the Hobbit. Moreover, the film-hire cost for upcountry screens will decline 2%, effective June 2012, and Mega Bangna’s revenue contribution will rise in 2H12.