Major Cineplex Group

Major Cineplex Group Plc (MAJOR) 

ST trading opportunity from laggard performance. We see a short-term trading
opportunity in MAJOR as its share performance is laggard yet it is looking at good
operational improvement in 2H12 that will eventually act as a share price catalyst.
Since July, MAJOR’s share price has underperformed peers (+7% for MAJOR vs. +16% for
BEC and +18% for MCOT) as investors responded negatively to its weak 2Q12 caused by
a weak movie lineup and cost pressure. We fine-tune our projection and our new
forecast suggests core earnings growth at 36% HoH in 2H12 with back-end loading in
4Q12. MAJOR offers 10% upside gain to our TP and we maintain our Neutral rating with
a new mid-2013 TP of Bt21/share.
3Q12 preview: Flat. We expect MAJOR to report 3Q12 net profit of Bt217mn, flat YoY
and QoQ. Excluding extra items in 3Q11 and 2Q12, core earnings will grow 6% YoY and
18% QoQ. Key assumptions are: 1) admission revenues to decline 5% YoY but increase
5% QoQ, 2) rental revenues to slip by 8% YoY and 7% QoQ, and 3) blended gross margin
to widen to 35.0% from 33.7% in 3Q11 and 34.2% in 2Q12 thanks to improved
operations of its VCD/DVD business.
Earnings fine-tuned: 4Q12F to be this year’s best. We reduce MAJOR’s earnings
estimate by 3% in 2012 and 6% in 2013 mainly due to lower admission revenues in 1H12
brought by the weak movie lineup. Our new earnings projection suggests core earnings
growth at 36% HoH in 2H12 with back-end loading in 4Q12 supported by stronger
movies including “007 Skyfall”, “The Twilight Saga: Breaking Dawn 2”, and “King
Naresuan 5” . We share the same view with management that 4Q12’s earnings will be
the highest of the year.
Readying for AEC. MAJOR revealed that it is interested in opening cinemas with local
partners in two neighboring countries in ASEAN and expects to announce concrete
details in November. The investment will be small scale at seven to eight cinemas per
country and MAJOR expects these to open in 2014. We do not think there will be a
significant contribution from this project, at least initially, given the minimal startup
investment. However, we see it as positive in the longer term since we see ample
demand, particularly in Cambodia, Laos, Myanmar and Vietnam, where the number of
cinemas is low and economies are growing.
Neutral maintained with mid-2013 TP at Bt21/share. We rate Neutral on MAJOR
with mid-2013 TP at Bt21/share. The stock is expected to deliver 5% dividend yield in
2013.