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Major Cineplex Group

Core earnings recovery in 2H14

Major Cineplex Group Plc (MAJOR)

Investment thesis

Following the preview conference call, we believe that 1Q14 core earnings will be the nadir, followed by a QoQ recovery in 2Q14 (due to a better film line-up and easing political tension) and a YoY rise in 2H14 (led by an MPIC turnaround and cost-cutting at MAJOR). Our BUY rating stands, premised on a 2H14 core earnings recovery and a cheap valuation—an FY14 PER of 16x (a long-term mean of 19.3x).

Lower box office takings for 1Q14

We estimate Bt729m in 1Q14 top-10 box office takings, down by 9% YoY and 21% QoQ. The assumed fall is attributable to the closing of prime theater locations at 5pm near political rallying sites during Jan-Feb and the domestic consumption slowdown. Only one movie grossed near Bt100m in 1Q14—Kid Theung Wittaya (Bt100m in total; Bt72m in 1Q14)—against two movies in 1Q13—Pee Mak Prakhanong (Bt570m in total; Bt102m in 1Q13) and G.I. Joe 2 (Bt115m in total; Bt62m in 1Q13). Three films grossed a 70-90m each in box takings in 1Q14—47 Ronin, Robocop (2014) and 300: Rise of an Empire.

Insights into 1Q14—a modest YoY rise in core profit

We estimate a Bt184m net profit for 1Q14, down 39% YoY but up 68% QoQ. Stripping out extra items in 1Q13 and 4Q13, core profit should post a rise of 5% YoY and 21% QoQ, led by better OPEX control and a significantly shallower MPIC net loss, which we believe would have outweighed the effect of top-line slippage.

MPIC's business model shift from a home entertainment distributor to a content provider and cost-cutting should have reduced its net loss from Bt61m in 4Q13 to Bt5m in 1Q14. Moreover, lower film-hire and staff costs in tandem with the launch of more e-ticketing boxes would have reduced MAJOR's OPEX. Ticket sales slipped 3% YoY in 1Q14. But concession, bowling, space rentals and onscreen advertising revenues should have risen by 2-4% YoY. DVD/VCD distribution revenue will post a 59% YoY dive.

QoQ recovery in 2Q14 a better film line-up & political easing

Due to the high 2Q13 profit base comparison (record box office takings for Pee Mak Prakhanong), we expect 2Q14 core profit to drop 23% YoY but rise 63% QoQ. The QoQ jump will be led by an improved movie line-up and increased movie-going with the easing of political tension. Note that Captain America 2 was the first film to premiere this year to gross above Bt100m (Bt152m up to April 20). We expect eight more blockbusters in 2Q-4Q14—The Amazing Spider-Man 2, Godzilla (2014), X-Men Days of the Future Past, King Naresuan 5 (2Q14), Transformers 4, Dawn of the Planet of the Apes (3Q14), The Hunger Games 3 (Part 1) and the Hobbit 3 (4Q14).




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