Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Investment thesis
Following the 2012 analyst meeting, we remain confident in MAJOR’s FY13 earnings recovery story, which will manifest in 2Q13. We believe the MPIC provisioning was a one-time hit in 4Q12 and its operation will turn around in FY13 with the downsizing of DVD/VCD production. Our BUY rating stands, premised on the FY13 earnings recovery and a cheap valuation—an FY13 PER of 17.5x (its long-term mean is 20x).
4Q12 core profit below expectation
MAJOR reported a Bt165m net profit for 4Q12, up 105% YoY but down 15% QoQ. There were two major extra items. Firstly, provisions for MPIC (67.9% stake) totaling Bt133m—a Bt50m goodwill impairment and an Bt83m loss provision (based on its 67.9% stake). Secondly, a Bt95m after-tax gain from the sale of 4% of SF (its stake in SF declined to 20.5% at YE12). Stripping out the extra items, core profit would be Bt203m, up 146% YoY and 19% QoQ.
Net profit exceeded our estimate by 22% thanks to lower MPIC provisions than expected. Core profit was 11% below our model, due to higher recurring expenses at MPIC (see details on page 4).
Downsizing the MVD business in FY13
MPIC will now focus on only two businesses—film production (under MPIC’s subsidiary M39) and the purchase of movie rights to screen in theaters. It will downsize its DVD/VCD production business, which is run under an MPIC subsidiary, MVD. MPIC will sell movie rights to DNA (2002) to produce DVDs/VCDs. In effect, MPIC will substantially reduce the risk of having to provision for returned goods this year.
Scope for upside from theater JV in Cambodia
Revenue from a theater JV in Cambodia with local theater operators (and a partnership with AEON Mall) should commence in 2014. Given AEON Mall’s strong presence, the CEO estimates a 4-5 year payback for the JV.
Strong FY13 onscreen ad revenue growth target
Management targets stronger onscreen ad revenue growth for FY13. In FY12, MAJOR reported a 14% YoY rise. We forecast that onscreen ad revenue will increase 20% this year. The drivers are new screens upcountry, a new strategy of selling ads by movie and new digital platform technology. Ad order bookings for the year now total Bt400m. MAJOR also plans to add 100 new screens in FY13 and another 100 new screens during FY14-15, which would bring its total number of operating screens to 600 at YE15.