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Summary

Major Cineplex is the market leader in Thailand’s cinema industry, with 815 screens under management and a market share close to 70%. The company is run by a hungry entrepreneur called Vicha Poolvaraluck, who built it from scratch. Historically, the company has earned a return on equity of close to 20%.
After many decades of success, the business hit a rough patch during COVID-19. Cinemas were forced to operate below capacity. Moviegoers had to wear masks and were unable to eat popcorn. And Hollywood movies were delayed for several years out of fear that COVID-19 would hurt their box office revenues.
Major Cineplex’s share price was mostly steady throughout 2021 and 2022. In the past few weeks, the share price has slumped. Investors are scratching their heads to figure out why.
Part of the reason could be related to the 1Q2023 numbers released on 10 May 2023. They were lacklustre, with revenues and profits falling sequentially.
But I think the share price slump is more likely related to Thailand’s lower house election, which took place on 14 May 2023. The election result surprised everyone, with the Move Forward Party - led by Harvard-educated Pita Limjaroenrat - gathering the most votes of any party. One of their campaign promises is to break up monopolies, and some fear that Major Cineplex might be one of the companies targeted by a new government.
On the other hand, the Move Forward Party coalition only has 313 seats out of the 376 necessary to gain government control. Campaign promises will have to be diluted. Compromises will need to be made. And it’s not even clear to me that Major Cineplex represents a monopoly in the eyes of the coalition.
The COVID-19 recovery story remains in place, however, with a strong pipeline of movies for the remainder of 2023.
In a full recovery scenario, I foresee a 2025e P/E of 12.9x and a dividend yield of 7.0% — low numbers in the context of an expensive overall Thai stock market.