Major Cineplex Group

Price laggard play; FY13 a golden year for sequels

Major Cineplex Group Plc (MAJOR)

Investment thesis

MAJOR has lagged the Media sectors during the past six months, as investors have penalized its share price over anticipation of MPIC provisioning in 4Q12. We think the market has overreacted. In any case, MPIC is liquidating its loss-making CVD/DVD distribution business. We recommend focusing on the FY13 operational outlook, given the strong line-up of blockbuster sequels scheduled to screen this year. Our BUY rating stands, premised on MAJOR being a laggard play, no negative impact from the NBTC's future digital TV licensing regime, an FY13 earnings jump and a cheap valuation—an FY13 PER of 17.4x against a 20x long-term mean.

Strong 4Q12 box office takings

We estimate Bt897m in 4Q12 top-10 box office takings, up 23% YoY but down 6% QoQ. The YoY rise was due to the low 4Q11 base comparison (flooding). Three movies grossed near or above Bt100m each in 4Q12—The Twilight 4.2, Skyfall and The Hobbit 1—against two movies in 4Q11—The Twilight 4.1 and MI 4. We estimate Bt3.72bn in FY12 top-10 box office revenue, up 3% YoY, led by The Avengers, The Twilight 4.2, Battleship, ATM Err Rak Error, etc.

FY13 to be a golden year for blockbuster sequels

FY13 top-10 Thai box office receipts should be reported at Bt4bn, up 7% YoY, driven by 21 Hollywood blockbusters and two Thai blockbusters—Tom Yum Koong and King Naresuan 5—more 3D screenings and more screens in upcountry locations. We expect 10 movies to gross over Bt100m each in FY13—G.I. Joe 2, Iron Man 3, Fast & Furious 6, After Earth, Superman: Man of Steel, World War Z, King Naresuan 5, Pacific Rim, Thor 2 and The Hobbit 2.

Jump in 4Q12 core profit

We estimate a Bt135m net profit for 4Q12, up 68% YoY but down 31% QoQ. Two major extra items will be booked for the quarter—a goodwill impairment for MPIC and a gain from trading SF shares. Stripping out those items, core profit is assumed to have jumped by 176% YoY and 33% QoQ. The YoY increase is due to the low base comparison set by 4Q11 flooding, higher ticket and concession sales and onscreen revenues. The QoQ rise is due to better OPEX control.

Termination of MVD business in FY13

MPIC, in which MAJOR holds 66%, is to liquidate its downstream DVD/VCD distribution business. We think the winding up of this operation will mean less inventory provisioning for MPIC and reduced consolidated earnings volatility. MPIC will continue to buy and produce movies, which MAJOR will screen.