Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Investment thesis
Following the 1Q13 analyst meeting, we are more bullish on MAJOR’s fundamentals. We anticipate record 2Q13 earnings and strong YoY profit growth in 2H13. Our BUY rating stands, premised on FY13 bottom-line expansion and a cheap valuation—an FY13 PER of 17x against a 20x long-term mean.
1Q13 core profit modestly above our estimate
MAJOR reported a Bt301m net profit for 1Q13, up by 29% YoY and 82% QoQ. Excluding a Bt125m after-tax gain from trading SF shares, core earnings would be Bt176m, up 9% YoY but down 14% QoQ. Net profit exceeded our estimate by 55%, thanks to a larger extra gain than modeled. Core earnings were 7% above our expectation, due to higher revenue than assumed. The top-line was 2% above our estimate, thanks to greater ticket sales and onscreen ad revenues than modeled. Gross profit exceeded our assumption by 7% (details on page 4).
MPIC’s new business restructure
The board approved the sale of MAJOR’s 45% stake in Major Kantana Broadcasting (“M Channel”) and its 80% stake in Talent One (T1) to a subsidiary, M Pictures (MPIC; currently a 74.4% stake) through a share swap. MPIC will issue Bt16.5m new shares to MAJOR in exchange for the shares of M Channel and T1. MAJOR will make a tender offer for the shares in MPIC that it doesn’t already own at Bt2.71 apiece. The tender offer will be financed by internal cash.
The purpose of the share swap is to group similar business units under the same company—for example, the movie productions of M39 (MPIC’s subsidiary) and of T1 (MAJOR’s subsidiary) under MPIC. The firm will change its business model to focus only on film—the production of Thai movies and the purchasing of rights for international movies. We expect MPIC to turn around in 2H13, led by lower film rights amortization expenses and reduced OPEX as a result of business restructuring.  
Strong ticket sales in 2Q13-to-date
Management indicated April ticket sales growth of 80-120% YoY and May-to-date growth of 37% YoY. We preliminarily anticipate Bt1.3bn in 2Q13 ticket sales, up by 48% YoY and 56% QoQ, and record earnings for the quarter.
FY13 core profit forecast upgraded by 7%
We have revised up our FY13 net earnings forecast by 19% and our core profit projection by 7% to factor in the gain from trading SF shares, higher ticket sales, a fatter GM and anticipation of better cost control and a 2H13 turnaround at MPIC. Our target price rises by 10% to Bt28.5.