Price (Bt) 5.90
Target (Bt) 7.70
Set Index 533.92
Earnings downgrade reflects weaker 1Q09 performance
Deteriorating earnings hurt by weak advertising income
The Major Cineplex Group (MAJOR) net profit dropped significantly to only Bt12mn in 1Q09, against
Bt301mn in 1Q08 with extra gains from the divestment of M Pictures and sale of the Central World
leaseholds. When excluding the one-time items and provisions for doubtful advertising service receivables,
amounting to Bt20mn booked in 1Q09, the MAJOR normalised earnings were Bt32mn, or a 79% yoy decrease. The
deteriorating performance has resulted from a weaker high-margin advertising business, down of 41% yoy,
following the economic slowdown. Ticket sales have also seen a contraction given fewer blockbuster
releases. The gross margin narrowed from 34.2% in 1Q08 to 29.0%. The equity gains from an affiliate also
went down due to softer performances of SF, CAWOW and MPIC.
Expect earnings recovery in 2Q09
We expect the 2Q09 performance to recover from the first quarter, fuelled by a strong line up of
movies; including Transformers 2, Terminator 4, Night at the Museum 2, X-Men Origins and Angels and Demons.
More blockbusters should help drive advertising business and concessions carrying relatively high margins.
Earnings revision
To reflect the weaker 1Q09 result, we have revised down our 2009 and 2010 earnings forecast by
32% and 30%, respectively. The normalised profit this year is now projected at Bt358mn (Bt0.40/share) or a
28% contraction from last year. Our assumptions are based on the 23 additional theatre screens and 46
bowling lanes this year. This includes the new stand-alone at Ratana Thibet to be opened in 4Q09 with 15
screens, 22 bowling lanes and rental space of 9,000 sqm. Note that the finance leases from Ratana Thibet
are expected at Bt300-400mn and have not been factored into our forecast, as yet.
Downgrade rating to BUY ON WEAKNESS
Our earnings revision brings about a fair value downgrade to Bt7.70 and this disappointing
performance for 1Q09 is likely to pressure the share price. We therefore have downgraded our stock rating
from ACCUMULATE to BUY ON WEAKNESS. The MAJOR performance is expected to recover after a focus on the core
theatre business together with better cost and expense controls.
Earnings summary
Year End Dec 31 2006 2007 2008 2009F 2010F
Sales (Btmn) 5,110 5,805 5,328 5,068 5,455
EBITDA (Btmn) 1,480 1,614 1,741 1,517 1,609
Normalised earnings (Btmn) 620 597 496 358 439
Earnings (Btmn) 695 1,227 626 338 439
EPS (Bt) * 0.79 0.68 0.56 0.4 0.49
PER (x) * 7.5 8.7 10.5 15.6 12
EV/EBITDA (x) 4.9 4.1 4.1 5 4.5
Free cash flow (Btmn) -761 626 501 127 541
CF/share (Bt) 0.4 1.3 1.7 1.6 1.4
BVPS (Bt) 5.3 6.4 6.16 5.83 6.02
P/BV (x) 1.1 0.9 1 1 1
DPS (Bt) 0.78 1.05 0.64 0.3 0.39
Dividend yield (%) 13.20% 17.80% 10.80% 5.10% 6.70%
Net debt/equity (x) 0.6 0.2 0.3 0.4 0.4
ROA (%) 8.60% 13.60% 6.60% 3.50% 4.50%
ROE (%) 19.50% 25.00% 11.30% 6.40% 8.30%
Note : * Normalised earnings
Source : Company reports and KELIVE Research estimates.
By Kim Eng Securities (Thailand) Company Limited on May 18, 2009
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