Major Cineplex Group

Major Cineplex Group Plc (MAJOR)  

 

We continue bullish on the stock with earnings growth of 30% YoY to a historical high of Bt1.3bn. We raise our DCF-based TP to Bt39 (from Bt33) as we change beta from 1 to 0.8 (per Bloomberg), which lowers our discount rate (WACC). 2Q15 earnings are poised to be a record, confirmation that earnings are directly linked to movie lineup, which is unusually strong this year.  

1Q15 earnings recap. MAJOR posted decent and in line profit of Bt199mn, but this included a one-time gain of Bt43mn from selling some stake in Siam Futures (SF). Stripping this out shows a core profit of Bt163mn, up 24% YoY but down 13% QoQ. The QoQ decline was seasonal, as movie lineups are generally less exciting in 1Q than in 4Q. This turns our attention to the YoY comparison. The key YoY drivers in 1Q15 were higher revenue from major businesses (cinema, concession and advertising) and better cost controls, especially on the SG&A side (down by 1.5% YoY and 20% QoQ).   

Management very positive. We attended the analyst meeting on Monday morning. The tone from the meeting was positive and in line with our bullish view.  

1) 2Q15 profit is set to break all records. Though 2Q14 was the previous high for revenue, management says movie revenue in April and thus far in May have surged 60% and 30% respectively above that prior high. Box office hits in April were led by “Fast and Furious VII” and “King Naresuan VI” and “Avengers” is driving growth in May. June will see the release of another major blockbuster “Jurassic World”. 

2) The lineup goes from strength to strength, with more hits to be released in 2H15, including “Mission Impossible V”, “Ant-Man”, “James Bond”, “Star Wars VII” and “The Hunger Games: Mockingjay Part II” .  

3) The firm has started a new pricing strategy, reducing price promotions with partners such as ADVANC and cutting back on free tickets. This has been in play since 1Q15, when it posted 10% average ticket price (ATP) growth.  

4) MAJOR continues to emphasis cost controls. SG&A expense was nearly unchanged in 1Q15 YoY and the firm expects costs to come down throughout the year, driven by its e-ticket strategy. 

Buy with new DCF-based target price of Bt39. Our WACC is 9% (down from 10% previously) with 4.5% risk-free rate and 10.5% cost of equity (0.8 beta). MAJOR has had a strong run YTD, up by 25% and by far outperforming the market. We believe this lies in the fact that MAJOR’s profit is little affected by the economic slowdown, especially given the stellar movie lineup in 2015. We expect 2Q15 earnings at Bt500-550mn, up 12-23% YoY. We also expect growth in 2H15 YoY. The strong growth momentum will act as further share price catalysts for the stock. Assigning a PE of 23x 2015F gives room to re-rate against earnings growth of Bt34% in 2015.