Major Cineplex Group

Investment thesis

Following the 3Q14 analyst meeting, we remain confident over MAJOR’s outlook for business expansion and earnings growth. An aggressive domestic screen rollout plan, a great FY15 movie line-up, strong ad revenue growth and an effective cost-saving program will boost the bottom-line. Also, the success of the cineplex in Cambodia and a further screen rollout planned for CLMV countries will support business growth and diversify revenue streams. We believe the 3Q14 MPIC provision constitutes a final hit and its operation will improve through FY15. BUY!

3Q14 core profit above our estimate

MAJOR reported a Bt293m net profit for 3Q14, up 46% YoY but down 36% QoQ. Stripping out three extra items—a Bt50m provision for inventory and accounts receivable (MVD), a Bt51m after-tax gain from trading SF and PVR shares and a Bt1m loss on disposals of assets—core profit would be Bt294m, up 45% YoY but down 38% QoQ (due to seasonality). Net profit beat our estimate by 11%, due to higher revenue than assumed. The top-line was 4% above our assumption—ticket sales, concession and onscreen ad revenues all exceeded the numbers in our model. Gross profit was 4% above our projection.

Spectacular YoY earnings growth expected for 4Q14 

Net profit in 4Q14 should jump 115% YoY (but drop 20% QoQ) to Bt236m, our model indicates, due to a stronger movie line-up and the low base set by 4Q13 (political turmoil and economic recession). The 4Q14 movie line-up is as follows—The Equalizer, The Hunger Games: Mockingjay, Part 1, The Hobbit 3: There and back again and Paranormal Activity 5.

Strong FY15 ad revenue growth target

MAJOR’s new high-end theater is due to open in Emquartier, Sukhumvit Road, in 1Q15. The firm guides that it will boost ad revenue growth in FY15. It targets 4-5 sponsors with 3- to 5-year contracts. The sponsors would add not less than Bt80m to revenue next year. We now conservatively assume FY15 ad revenue growth of 10%.

Cineplex in Cambodia is performing very well

The cineplex in Phnom Penh now has a 70% market share in that city. We expect it to break even in 15 months (against about three years for domestic theaters), due to its popularity and high ticket fees—US$5.5-6 versus $5 for domestic theaters. 

FY14 net profit forecast upgraded 6% 

We have revised up our FY14 earnings projection by 6% to Bt1.12bn to reflect the better-than-expected 3Q14 results. The 9M14 number represents 79% of our full-year projection. Our FY15 earnings forecast and target price stand unchanged.