Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Investment thesis: High season for Hollywood movies in 2Q-3Q12 and the kicking in of revenue from Mega Bangna in May will drive 2H12-FY13 earnings growth. Our BUY rating on MAJOR stands, premised on sustained 2H12-FY13 earnings expansion and a cheap valuation.    
Solid 1Q12 box-office takings: The top-10 films at the box office in Jan-March grossed Bt827m, up by 20% YoY and 14% QoQ, underpinned by three Thai blockbusters—ATM Er-Rak Error (Bt147m), Sor Kor Sor Sweetie (Bt81m) and Valentine Sweetie (Bt58m)—and four Hollywood blockbusters—Underworld 4 (Bt57m), John Carter (Bt71m), Wrath of the Titans (Bt76m) and Hunger Games (Bt65m). We estimate Bt788m in ticket sales for the quarter, up by 12% YoY and 21% QoQ.
Solid 1Q12 core earnings: A Bt210m net profit is expected for 1Q12, up by 9% YoY and 160% QoQ. Excluding extra items—a Bt35m after-tax gain from trading SF shares against Bt31m from three extra items in 1Q11—core profit would be Bt175m, up by 8% YoY and 112% QoQ. The QoQ jump is due to the recovery from 4Q11 flooding; the YoY rise because of business growth across all units (except bowling—down 6% YoY with the closing of two branches). Onscreen ad revenue jumped 32% YoY, as ad budgets held over from 4Q11 were spent in 1Q12; ticket sales rose 12% YoY.
Mega Bangna and a strong line-up: We expect robust ticket sales for 2Q12, underpinned by a better line-up of Hollywood blockbusters—Battleship (Bt137m up to April 29), Avengers (Bt42m in the first two days), Amazing Spiderman etc—and revenues from Mega Bangna, which will officially open on May 5. It will feature 15 digital cinema screens (3,420 seats), equal to 4% of YE11 screen capacity, 24 bowling lanes and 25 karaoke rooms. Seacon Bangkae (10 screens), which will open in 3Q12, and three other locations (7 screens) to debut in 4Q12 will boost screen capacity in 2H12.
FY12-13 net profit forecasts raised: We have revised up our FY12 net earnings projection by 10% and our FY13 number by 18% to factor in a stronger Hollywood movie line-up and fatter ticket sales margin (due to the low space rental cost for the Mega Bangna branch). As such, our target price increases 20% to Bt24.5.