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IMAX China (1970 HK)

Exclusive provider of IMAX cinema equipment to China at 7.5x P/E
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IMAX China (1970 HK - US$313 million) is the Chinese subsidiary of America’s IMAX Corporation - a leading provider of high-end cinema equipment.

The Chinese business is separately listed in Hong Kong under the ticker 1970 HK. It’s been given an exclusive license to sell IMAX theater systems to exhibitors within Greater China.

IMAX offers more immersive cinema experiences thanks to massive screens, steep seating arrangements, taller aspect ratios, better resolution and surround sound.

By selling IMAX as a better experience for the customer, it’s managed to carve out a niche for itself. And the business has become highly profitable as well, with operating margins well above 40%.

I think the explanation is that studios with blockbuster content are willing to pay IMAX for the conversion of their movies since they don’t want to miss out on revenues from IMAX’s now sizeable footprint. And customers are willing to pay extra when watching movies such as Oppenheimer or Dune since they know they’ll get the best experience.

That said, on my numbers it seems like IMAX is already charging quite a bit for their services and theaters with IMAX equipment don’t seem that profitable. I suspect that IMAX’s pricing power has pretty much been exhausted. In the future, growth will probably rely on greater scale rather than higher prices.

Since IMAX China’s IPO in 2015, the share prices has been on a long-term slide. The main reason is that installation revenue hit a peak shortly after the IPO. At that time, recurring revenue streams like maintenance and film conversion fees were small relative to the total, failing to make up for falling installations.

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