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Major Cineplex Group

Net & core profits far below estimates

Major Cineplex Group Plc (MAJOR)

Net and core profits undershot estimates

MAJOR reported net earnings of Bt110m for 4Q13, down by 42% YoY and 45% QoQ. Stripping out extra items—a Bt30m 35mm projector write-off and a Bt13m loss on the sale of property & equipment—core profit would be Bt153m, down by 33% YoY and 21% QoQ. Net and core profits undershot our estimates by 39% and 25%, respectively, due to higher SG&A expenses and a deeper MPIC loss than modeled.

Results highlights

The YoY core profit dive was led by a drop in gross profit on ticket sales and MPIC's reversal into a gross loss. The QoQ decline was due to a deeper loss at MPIC, onscreen ad revenue slippage and a jump in interest expenses. Four business units posted YoY revenue rises for 4Q13—ticket sales (up 6%), concessions (up 5%), bowling (up 7%) and onscreen ads (up 11%). DVD/VCD distribution revenue dived 54% YoY, led by the downsizing of the home entertainment unit.

Three businesses posted YoY gross profit rises for 4Q13—concessions (up 6%), bowling (up 42%) and onscreen ads (up 11%). GP for ticket sales dropped 10% YoY and GM for ticket sales declined to 15.5percent from 18.3% in 4Q12. DVD/VCD distribution deteriorated QoQ to a Bt47m gross loss in 4Q13 (against break-even in 3Q13), led by losses for two M39-produced movies.

Outlook

Management guides for a 13% YoY rise in ticket-plus-concessions revenue in Jan and a 6% YoY rise in Feb, despite the ongoing political chaos and the consumption slowdown. 1Q14-to-date onscreen ad revenue will post a 10% YoY increase. MPIC will report black ink for 1Q14, led by cost-cutting and a new business model. Overall, we expect a 1Q14 core profit rise of 5% YoY and 21% QoQ.

The expected FY14 MPIC turnaround is led by higher revenue from 15 MPIC- and M39-produced films. The firm still targets a 10-15% YoY rise in total sales and a 15% YoY increase in onscreen ad revenue for the year. Ticket sales will rebound QoQ on eight blockbusters in 2Q14. CAPEX is budgeted at Bt1bn for 40 new screens in Thailand and eight new screens and 16 bowling lanes in Cambodia. We believe that the 10-15percent sales target for FY14 looks too optimistic (against our new FY14 sales forecast of 7%), given the weak consumption environment.

What's changed?

We have cut our FY14 net profit forecast by 10% to Bt1.07bn to factor in a diminished revenue growth assumption (from 14% to 7%), due to weak consumption. The YE14 target price declines 12% to Bt23.50.

Recommendation

Our BUY rating stands, premised on a cheap valuation.




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