Major Cineplex Group

Major Cineplex Group Plc

 

In 4Q15, management guidance suggests earnings of Bt241mn, missing our earlier estimates of Bt270-300mn, largely because blockbusters such as “Star Wars” ended with a whimper rather than a bang. Despite this, earnings for the year remain in line with our forecast of Bt1.1bn, up 13% YoY, and MAJOR will still be the sole media stock able to deliver YoY growth. For the longer horizon, we like MAJOR as a growth stock driven by aggressive expansion both in and outside Thailand.

Call: Slightly negative tone. We rang MAJOR to get a preview of 4Q15 and were disappointed by the lackluster tone. Key takeaways are summarized below.

1) Hopes were high for “Star Wars: the Force Awakens” after it broke box office records around the globe – but it was not a great success in Thailand. MAJOR reports revenue of only Bt115mn from this movie, just half the Bt330mn it made from the local movie “I’m fine, thank you, love you” in December last year. MAJOR says the top ten movies in 4Q15 generated 2% less revenue than the top ten in 4Q14. This YoY decline in admission revenue will pull total revenue down YoY. The bright spot is that concession and advertising revenue both increased YoY in 4Q15. Unfortunately, because these contribute just 30% of total revenue, it was not enough to make up for the gap in admission revenue, which comprises 50% of total revenue.

2) Gross margin will narrow in tandem with the fall in revenue as depreciation from screen expansion hits.

3) It made its goal of expanding screens to 600 by end-2015, implying it added about 20 new screens in 4Q15.

Slip QoQ in 4Q15. According to the firm’s guidance, 4Q15 core earnings will be Bt241mn, up 29% YoY but down 3% QoQ, missing our earlier estimate of Bt270-300mn. This would bring 2015 full-year earnings to Bt1.09bn or only 2% short of our estimate. We thus leave our 2015 forecast unchanged. In spite of the short-term hiccup in earnings, we maintain our view that MAJOR’s earnings will turn up with a 5-year CAGR of 14% in 2015-2020 to a new base of Bt2bn, doubling from 2015. Key to growth is higher revenue from screen expansion both in Thailand and overseas and a fatter margin from operational leverage, as fixed costs are high.

Reiterate our buy call with DCF-based target price of Bt36. Share price has been at ~Bt31 for some time without a short-term catalyst to drive price up. But MAJOR, in our view, is a good long-term buy. At current price, it trades at 12.8x 2020 EPS, a 50% discount to current level.