Major Cineplex Group

Aggressive move to boost 2013 growth. Upgrade to "BUY

Major Cineplex Group Plc (MAJOR)

Impairment of good will at MPIC, dragging 4Q12 to weaken QoQ

MAJOR's 4Q12 profit is projected to increase from 3Q12 by 3.3% QoQ to

B201m due mainly to revenue from movie business that increased slightly from

3Q12. This is a result of box-office movies like The Twilight Saga: Breaking

Dawn Part 2 and 007 Sky Fall with over B100m of revenue, together with

concession sales and advertising fee increasing over 3% QoQ which would

boost the gross profit margin to rise from 3Q12. Nevertheless, MAJOR has

B62bn of net expenses in 4Q12 from extraordinary items as follows. 1) The

subsidiary MPIC has impaired good will of the affiliated company MDV because

it has a policy for MDV to cease production of DVDs and VCDs for sales.

However, MVD still has 2 more years to produce DVDs and VCDs for Disney and

Cartoon Network as contracted. 2) There's some compensation from 2% profit

from a sale of associated company SF from the total paid-up shares.

Accordingly, 4Q12 net profit is projected to decrease by 28.4% QoQ to B140m,

resulting in FY2012 profit at B794m which is close the one of the 2011;

however, this is still lower than our projection. With the extraordinary items in

4Q12, we revise down our 2012 net profit forecast by B62m.

Growth to return in 2013 by 19% due to adjusted business strategy

Apart from clearing problems in 2012 from the bowling business by shutting

down 4 branches with no profit, the affiliated company MPIC's production of

DVDs and VCDs has been ceased since it's open to risks from loss as

consumers tend more to watch movies via other alternatives such as online

medias or tablets. Other than that, in 2013, MAJOR has a plan to expand its

movie theaters by 119 to 538 screens which would mainly be located in other

provinces. Moreover, the company aims to expand 100 more digital movie

theaters to 300 screens in total in order to raise the average ticket fee income.

In 2Q13, lots of blockbuster programs would arrive; for instance, Fast & Furious

6, Iron Man 3, Tom Yum Goong 2 (or The Protector), and also the last episode

of King Naresuan (if there's no postponement). Accordingly, the revenue from

ticket sales would increase significantly, also boosting the advertising income to

grow not lower than 15% YoY. MAJOR's 2013 net profit is projected to rise by

19percent from the prior year under a conservative assumption of King Naresuan

postponed away from 2013.

Aggressive plan to boost long-term growth. Upside is 25%. Upgrade to "BUY"

MAJOR has a plan of long-term aggressive theater expansion, aiming at 600

screens within 2015 and 1,000 screens in 2020 in order to meet with

consumers who tend more to watch movies in a theater especially in other

provinces due to purchasing power that has grown along with the economy. As

a result, the company would become one of companies with long-term growth

potential. Revising the terminal growth rate from 1.5% to 3%, we revise up the

new fair value, using DCF, to B25.30 with 25% upside. We upgrade our

recommendation from "SELL" to "BUY" for MAJOR.