Major Cineplex Group

Major Cineplex Group Plc (MAJOR)  

We continue bullish on the stock with unchanged target price of Bt33 as MAJOR stands to benefit from a golden year for the movie business in 2015 plus economic recovery. We expect strong earnings growth of 34% in 2015 to a record of Bt1.3bn. Despite the surge in the share price over past six months, MAJOR still trades at 20x 2015PE, a 12% discount to the 23x seen in 2011-12 when earnings were also in high gear. We estimate 14% total return from this level. 

 

Management is positive. We attended the analyst meeting on Monday morning. The tone from the meeting was positive and in line with our bullish view. Key takeaways are given below. 

 

1) The firm expects total service revenue to grow at least 10% YoY in 2015 driven by major business units movies and advertising. 

 

2) Expansion in 2015 will be more aggressive than in 2014 and chiefly in Thailand. MAJOR expects to double its new screens to 80 this year from 40 in 2014 to reach a total of 600 screens by the end of the year. It will look for more expansion opportunities abroad in 2015, mainly in Laos and Myanmar. It also plans to open up more movie theaters in Cambodia. 

 

3) Capex this year is set at ~Bt1.2bn, financed largely by internal cash flow.       

 

We are more optimistic on revenue growth. We assume service revenue growth of 13.5% in 2015 or 3.5% above management’s guidance, as we are more bullish on earnings growth for the movie and advertising businesses. We assume admissions will grow 14% and concession revenue will grow 17% in 2015. We do not see this as demanding, given the 20-22% growth in revenue in the last golden years of 2011 and 2013. We also assume 15% growth in advertising revenue vs. 10% guidance. Our greater optimism comes from our more positive view on the strategy shift to sell advertising based on which movie is showing rather than location as well as the positive effect from the opening of Emquartier in March. This is because as a rule there is more ad revenue coming from sponsors for new and magnet branches such as Emquartier.       

 

MPIC less of a concern. Concerns over MPIC are lower after it underwent a business restructure. MAJOR reports that MPIC has written off almost all inventory and accounts receivable over the past two years (2013-2014). This means no more huge loss passed on to MAJOR. In our model, we expect neither loss nor profit from MPIC in 2015. However, there is some risk from its current business as movie producer if the company cannot find sponsors and the movies do not fly and generate large losses. This is downside risk to our earnings forecast.