Deep-dive 2020-3: Major Cineplex Group Public Co Ltd

Major Cineplex (MAJOR TB) is the leading cinema operator in Thailand with 815 screens in Thailand and neighbouring countries.

The company is run by a hungry entrepreneur called Vicha Poolvaraluk, who built the company from scratch. He owns 30% of the shares and is said to be honest, ambitious and aggressive. At age 57, he is still highly involved in the company and wants to see it grow.

While European and North American box office revenues are stagnant, the Thai box office is growing at 10-15% per year. The number of screens per capita are still at only 50% of that in Malaysia and only 13% of that in the United States. Another area of opportunity is concession revenues. In Thailand, they represent only about ~19% of revenues vs 40-50% for developed market cinemas.

COVID-19 hit the company hard. After Thailand entered a full lock-down in March to May 2020, Major Cineplex shut down its entire operation. Screens re-opened in June, but at a reduced capacity of only 25%. While the number of new COVID-19 cases in Thailand has been limited, it is unclear how long it will take for the industry to recover. Investors are also concerned that competition from Netflix and other online streaming services might put a dent in cinema attendance.

We think those concerns are exaggerated. Netflix was released in 2017 and there has been no visible impact on cinema attendance in the subsequent two years. The theatrical release window is also likely to remain at 90 days+ for the foreseeable future. Hollywood studios prefer to release blockbuster content in cinemas, as online releases tend to be ignored by the general public. One can also argue that cinemas and online streaming services are not direct substitutes. Cinemas can be said to offer customers an inexpensive option for "nights out" with friends or dating partners. On the positive side, Hollywood blockbusters have started to be released again, with Tenet in early August 2020, followed by the new James Bond movie in November and Wonder Woman in December.

Major Cineplex is guiding for a gradual increase in capacity from the current 25% up to 100% in the next year or two. Landlords have started to offer rent concessions from the third quarter 2020 onwards. The company is guiding for a net profit break-even in 4Q20. Liquidity and debt levels are modest, so the company should not have any problems weathering the storm.

Assuming a full recovery in cinema attendance by 2022, the stock will trade at a 2023e PE ratio of 10.3x, offering upside of +85% if the stock were to trade at its historical average PE ratio of 19x. We believe that this multiple is well justified given the long runway of growth, limited debt, excellent management team and high return on capital.

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The above article and PowerPoint presentation constitute the author’s personal views only and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. The author may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. Disclosure – we do hold a position in Major Cineplex at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).


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