Major Cineplex Group

Investment thesis

Last week, we accompanied Mr Vicha Poolvaraluck, executive chairman and CEO of MAJOR, on a non-deal roadshow for local institutional investors. The key messages at the meetings made us feel more bullish about the firm’s prospects. We have revised up our FY15 earnings forecast by 11% to Bt1.3bn, premised on an aggressive domestic screen rollout plan, further screen expansion in CLMV markets, a great movie line-up and an effective cost-saving program. Moreover, MPIC’s new movie-making venture presents an opportunity to establish a presence in film production. Our BUY rating stands with an upgraded YE15 target price of Bt31.5 (from Bt26). The key takeaways are summarized below.

An exceptional movie line-up for 2015

Next year will usher in a line-up of Hollywood blockbusters—a range of superhero films, sequels and animated movies. We believe that the superior movie line-up will support MAJOR’s FY15 ticket sales and concession revenue, which we model at Bt6.05bn, up 11% YoY.

Cost-saving programs starting to manifest; expanding GM

The firm has moved to reduce staff costs by upgrading its cinema business to a digital platform—e-ticketing boxes, online applications and digital projectors. We expect a man-hour cost decline trend to become apparent in the 2H14 financial statements and a reduction of about 20% in FY15. As such, our model now indicates an SG&A/sales ratio of 22.7% for FY15 (we previously assumed 23.5%). Blended GM is projected at 35.8% for FY15 and 36.1% for FY16 (up from 35.4% for FY14).

Aggressive screen rollout plan; to double the number by 2020

MAJOR targets having 600 domestic screens by YE15, up from 497 at end-Sept 2014. Most of its new screens will open in the provinces at shopping centers owned by Tesco, BIGC and Robinson. Moreover, the firm targets having 1,000 screens by YE20. MAJOR also expects to have 100 screens in CLMV within five years. 

More bullish over FY15 onscreen ad receipts growth outlook

Despite the prevailing industry-wide ad spend decline, we are now assume 12% growth in onscreen ad revenue in FY15 (we previously modeled for 8%) for MAJOR. The growth will be led by customized packages enabling greater flexibility in the use of platforms (screen, LED and print signage, events, etc) and a new premium package for theaters in Paragon and (soon-to-open) Emquartier branches.

MPIC—MAJOR’s film-making venture

MPIC is MAJOR’s production house. It comprises three studios—M39, Talent 1 and Transformation Films—each of which is planned to produce 3-5 movies per year. MPIC is now working to develop quality films to distribute in Southeast Asia, China and South Korea.