Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Lower core profit than modeled: MAJOR posted a Bt233m net profit for 1Q12, up 21% YoY and 189% QoQ. There were two extra items—a Bt48m after-tax gain from the sale of a 1.3% stake in SF and a Bt24m after-tax fire insurance payout for the Banga branch. Stripping out those gains, core profit was flattish YoY but up 95% QoQ. Net earnings exceeded our estimate by 11%, due to a fatter-than-modeled extra gain (we didn’t expect an insurance payout), but core profit was 8% short of our number—GM was 32% (we assumed 35%) and SG&A was higher than we anticipated. 
Results highlights: The flat YoY core profit was due to a jump in service costs and SG&A (related to higher film hire, electricity expenses and MPIC discounts to clients), which offset the effect of a strong rise in revenue. GM dipped to 32% from 35% in 1Q11 and 34% in 4Q11. The QoQ profit jump was because of a post-flooding recovery across all business units (except bowling) and better SG&A management.
Revenues from space rentals rose by 19% YoY, onscreen ads by 18%, DVD/VCD distribution by 15%, ticketing by 14% and concessions by 11%. Bowling income dipped 5% YoY with the closing of two branches—Piyarom and Ladprao. In gross profit terms, DVD/VCD distribution posted the strongest growth—up 35% YoY, followed by concessions (up 6%), onscreen ads (up 4%) and ticketing (up 3%). The average ticket price (ATP) was Bt141, up 11% YoY.
Outlook: Management guides that 2Q12 ticket sales will rise YoY. April ticket sales dropped 20% YoY, due to the high April 2011 base, but sales in May should post modest growth, underpinned by Avengers (Bt230-250m) and MIB 3. We expect a strong rise in June ticket sales, thanks to the low base set by June 2011. Negotiations with major studios to reduce film hire costs by 1-2% for MAJOR’s upcountry screens will boost ticketing margin in 2Q12, while ATP will rise further on more 3D movie screenings. Onscreen ad revenue will rise 20% YoY on a new sales strategy, according to MAJOR. Mega Bangna will augment earnings in 2Q12 onward.    
What’s changed? We maintain our FY12 net profit forecast unchanged.
Recommendation: Our BUY rating stands. Core profit will improve further in 2Q12 and 2H12.