Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Investment thesis
Given the stronger-than-expected 2Q14 ticket sales, we now estimate a net profit for the quarter of Bt316m (we previously modeled for Bt224m). We are confident in MAJOR’s prospects for 2H14 and beyond, led by a recovery in movie-going with the end the political chaos (and the lifting of the curfew that followed the coup), a turnaround at MPIC, cost-cutting and an aggressive screen roll out plan (both domestically and in CLMV countries). As such, we have upped our earnings forecasts by 5% for FY14 and by 4% for FY15. Our BUY rating stands with an upgraded YE14 target price of Bt22.20 (up from Bt21.80).
Insights into 2Q14—entering high season
We estimate MAJOR’s 2Q14 ticket sales at Bt1.35bn, up 61% QoQ (but down 8% YoY), due to five movies grossing over Bt100m in 2Q14. We now expect a Bt316m net profit for the quarter, up 125% QoQ but down 28% YoY. Stripping out extra items, core profit should post a jump of 121% QoQ but a drop of 19% YoY. The QoQ jump is attributable to a stronger film line-up and a recovery in movie-going. The YoY slippage is due to the high base set by 2Q13 when Pee Mak Prakhanong screened. Concession revenue is projected to have declined by 4% YoY and onscreen ad receipts by 7% YoY (clients delayed ad spending into 2H14).
MPIC looks set to deliver a Bt30m net loss for 2Q14, as an M39-produced movie—Mun Plaiw Mak—made a Bt30m loss and there was a Bt20m provision for inventory and accounts receivable (MVD) and high pre-operating costs for movies produced by M39, due to screen in 2H14.
3Q14 earnings to post YoY rise
Net profit in 3Q14 should rise 30% YoY, our model indicates, due to the low 3Q13 profit base (but drop 17% QoQ, as the 3Q14 film line-up is weaker QoQ). Only four Hollywood blockbusters are to screen during the quarter—Dawn of the Planet of the Apes, Step Up All in, Guardians of the Galaxy and Teenage Mutant Ninja Turtles. Moreover, increased movie-going in tandem with the breaking of the political deadlock and the end of the NCPO-imposed curfew, MPIC’s expected turnaround and further cost reductions will support MAJOR’s 2H14 earnings.
Upside from entry to CLMV markets
In July, the firm opened its first complex in Phnom Penh (seven screens). MAJOR will realize full-year revenue from Cambodia in FY15, which it guides will comprise about 10% of ticket sales. It plans to open 40-50 screens in Cambodia within five years and 100 screens in CLMV markets at a total investment cost of Bt500m. MAJOR targets expanding the proportionate contribution of oversea businesses to the top-line from 5% currently to 15-20% in FY20.