Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

In what should have been a seasonally-strong quarter, 3Q12’s Hollywood and local movies have been disappointing so far. Negative news flow about flooding might affect discretionary consumption in some provinces, and trim 4Q12 results expectations. Given the lack of rerating catalysts in the near-term, Major is still a Neutral with unchanged estimates and target price (blended DCF and PEG). Although earnings risk is mounting due to the soft movie line-up in 3Q12 and possible impact from floods in 4Q12, we still like Major as a cheap domestic play with dominant market position and provincial exposure. 

What Happened
Our recent discussion with Major’s IR representative has left us feeling less optimistic about its 3Q12 results, even if we are still upbeat on the company’s longer-term business
outlook.The IR rep said that 3Q12 ticket sales should still be soft, both yoy and qoq,owing to many disappointing Hollywood and local movies, e.g. Total Recall, Bourne Legacy, Seven
Something, etc. She also admitted that the line-up in Sep does not look promising either, with the likes of Resident Evil 5. However, she said management was confident of 4Q12 blockbusters driving ticket sales during the festive seasons. Management plans to open 35 new
screens and raise the average ticket price by 6% in 2012, and will be more aggressive with 95 new screens and 3-5% higher average ticket prices for 2013.

What We Think
We preview 3Q12 core net profit of THB174m, down 15% yoy and 5% qoq, to reflect the latest box office data and the company’s guidance. However, we maintain our 4Q12 forecast for now
on the premise of a healthy recovery, thanks to a decent film line-up and the high spending festive season. Nevertheless, such strong numbers could disappear if the flood situation gets worse, forcing the shutdown of some screens and weakening consumer sentiment.

What You Should Do
We maintain our Neutral call as the expectedly weak 3Q12 results and mounting flood-related risk in 4Q12 could be a drag in the near term. BEC is our top Thai media pick, although Major’s valuation looks like a bargain as the stock has underperformed the SET by 7% since we downgraded it on 11 May.