Major Cineplex Group

Major Cineplex Group Plc (MAJOR)

Core profit slightly below estimate
MAJOR reported a Bt201m net profit for 3Q13, up 5% YoY but down 54% QoQ. Stripping out extra items—a Bt8m after-tax gain from an asset sale in 3Q13 and other extra items in 2Q13 and 3Q12—core profit would be Bt193m, up 15% YoY but down 50% QoQ. The reported net profit was in line with our estimate, but core profit was 6% below our model—SG&A was higher we assumed, while equity income was lower.
Results highlights
The solid YoY core profit growth was led by concession sales, onscreen ad revenue and good OPEX control. The QoQ tumble was due to record 2Q13 ticket sales. Three business units posted YoY revenue rises in 3Q13—ticket sales (up 2%), concessions (up 18%) and onscreen ads (up 23%). The concessions-to-ticket sales ratio hit a record of 30% for the quarter. DVD/VCD distribution revenue fell 35% YoY with the downsizing of the home entertainment unit.
Three businesses posted YoY gross profit (GP) rises for 3Q13—concessions (up 22%), onscreen ads (up 29%) and bowling (up 9%). GP for ticket sales dropped 12% YoY and GM declined to 14% from 16% in 3Q12, due to a weak movie line-up. GP for DVD/VCD distribution improved QoQ to break-even (against an Bt18m gross loss in 2Q13). A Bt120m goodwill impairment for MPIC in 3Q13 had an insignificant impact because MAJOR had provisioned for MPIC goodwill during 4Q12-9M13; the value of MPIC’s goodwill on the firm’s income statement is now insignificant. 
Outlook
We expect 4Q13 ticket sales to improve YoY and QoQ on a better movie line-up, high season and a 3% average price increase for student tickets. MAJOR conservatively targets a 10% rise in FY14 ad revenue; we believe growth will exceed 10%. Ad revenue from LCD screens (which will replace movie posters) and online media will enable new income generation in the future. The firm targets 40-50 new screens and will cut staff costs in FY14 through greater use of e-ticketing and reduce film hire costs with studios. 
What’s changed?
We have downgraded our core profit forecasts by 8% for FY13 to Bt1bn and by 7% for FY14 to Bt1.19bn to reflect the slightly disappointing 3Q13 core profit and a lower expectation for FY14 ticket sales growth. Hence, our YE14 target price declines 5% to Bt27.
Recommendation
Our BUY rating stands, premised on solid FY14 core earnings growth.