Major Cineplex Group

Major Cineplex Group Plc (MAJOR) 

Investment thesis 

We remain confident over MAJOR’s long-term business expansion and its earnings growth profile. An aggressive domestic screen rollout plan, a great FY15 movie line-up, strong ad revenue growth and an effective cost-saving program will boost the bottom-line. Moreover, the success of the cineplex in Cambodia and a further screen rollout planned for CLMV markets will support business growth and broaden income streams. We also believe MPIC’s operation will improve through FY15. With a better outlook for the media industry this year, we have upped our perpetual terminal growth rate assumption to 4% from 1% (which we now think is too conservative). Hence, our YE15 target price rises from Bt31.5 to Bt36. BUY!

4Q14 net profit below our estimate

MAJOR reported a Bt207m net profit for 4Q14, up 89% YoY but down 29% QoQ. Stripping out two extra items—a Bt23m after-tax gain from trading PVR shares and a Bt3m loss on disposals of property and equipment—core earnings would be Bt188m, up 33% YoY but down 36% QoQ. The bottom-line was 12% below our estimate, due to higher SG&A and interest expenses than modeled and a slimmer GM than expected. Gross profit was 4% below our projection. 

YoY earnings growth anticipated for 1Q15

We expect MAJOR’s 1Q15 bottom-line to rise both YoY and QoQ, driven by a stronger movie line-up, cost-cutting and the low 1Q14 profit base (due to political turmoil and economic recession).

Aggressive screen rollout planned 

Management targets opening 87 more screens in Thailand this year, mostly in provincial Tesco-Lotus and BIGC malls (the FY15 CAPEX budget is Bt1.1bn). In CLMV markets, following the success of the cineplex that opened in Phnom Penh last year in an Aeon mall, MAJOR plans to open more theaters in Aeon malls by FY20—one in Laos (to open in FY16) and one each in Cambodia, Vietnam and Myanmar. 

Strong onscreen ad receipts growth outlook

Subdued industry-wide ad spend growth in 1H15 will be followed by a clear recovery in 2H15, we believe. As such, we assume 10% growth in onscreen ad revenue in FY15, led by an exceptional movie line-up, more screens and the installation of more LED advertising screens in cineplex foyers.   

MPIC’s operation to improve through FY15

Last year was transformative for MPIC. The firm set 100% provisions for the inventory and accounts receivable of MVD last year. So from now on, MPIC’s performance will be determined by the popularity of its Thai feature film productions—12 movies will be produced this year. We expect MPIC’s operation to improve through FY15.