Pi STOCK UPDATE : MAJOR (BUY : FAIR PRICE Bt19.30)

" Expect a hiccup in 3Q23 before recovering in 4Q23 "

We expect 3Q23 core earnings to drop QoQ from its impressive quarter in 2Q23 given a less attraction of movies on showtime and fewer number of blockbusters. Revenue from outside the cinema premises (6% of revenue in 1H23) are expected to grow consistently following a distribution coverage, e-commerce, and modern-trade expansions. We expect 4Q23 earnings to hit its peak of this year on the back of seasonal release of high-grossing movie franchises and recurring benefit from cost-saving program. We maintain BUY, despite revising our 2023-24E core profit forecasts down by 19% and 11% respectively due to sluggish recovery in number of cinema guests and lower-than-expected average ticket price (ATP). Therefore, fair price was trimmed down to Bt19.30 (previous Bt21.0) derived from 25.0x PE’24E, its five-year mean.

Impressive earnings performance in 2Q23

• Stripping out extra items from divestment in MPIC PCL worth Bt346m, core earnings would be at Bt198m (+53%YoY +163%QoQ), the highest level since pandemic emerged in 1Q20. The result missed market estimates by 13%. YoY and QOQ recovery supported by number of blockbusters on showtime such as Fast X, Guardian of the Galaxy volume 3, Transformers: Rise of the Beast, which had earned Bt450m in total for the company.

• Total revenue hit 14-quarter high at Bt2.3bn backed by cinema related incomes including admission fees that expanded to 15-quarter high at Bt1.2bn and concession revenue that continued to hit record level at Bt654m. Traffic at cinemas reached more than 80% of pre-COVID level, despite average ticket price remained on declined pattern to Bt156 (-3%QoQ -23%YoY) due to higher box office revenue from upcountry. (50% in 2Q23 vs. 45% in 2Q22)

• Gross profit margin expanded YoY and QoQ to 32.9% due to an increase in revenue in all segments and benefit of operating leverage.

• SG&A to sales ratio fell to 22.8%, the lowest level since 2Q19. (24.8% in 1Q23) benefit from economies of scale and implementation of cost-saving program mainly on rental and staff expenses together with reduction in utility cost.

• MAJOR announced Bt0.5 interim dividend payment or equivalent to yield of 3.3%, which will be XD on 23th August’23.

Expect earnings to face a hiccup in 3Q23 before rebounding in 4Q23

3Q23 movie releases will create less attraction compared to 2Q23 as we have seen the evidences from Thailand Box Office as of the first half of 3Q23. Mission Impossible – Dead Reckoning Part 1, Long Live Love, Oppenheimer, Meg 2: The Trench, and Barbie are the top five grossing films with only combined Bt460m box office revenue made nationwide. Therefore, earnings in 3Q23 is expected to contract QoQ significantly, despite a continued increase in revenue from outside cinemas. We expect traffic at MAJOR’s theatres in 4Q23 to remain at around 75-80% of pre-pandemic level as the threats from weak local spending and number of fans on online streaming platforms who are willing to wait couple of months after the first show to the audiences at cinemas, remain the key obstacles for the company to regain back all the traffic to the theatres. It is quite challenging for the traffic to fully cover in 2024 due to the changing audience behavior and film supply disruption following the Hollywood’s production halt in the pas
t few months. However, we still see limited downside to MAJOR’s earnings recovery profile as visiting cinemas for a film still dominate online platform in terms of quality of the immersive cinema experience and powerful sound system. Successful cost control scheme and sourcing revenue from selling popcorn outside cinema should partly offset the impact from declining traffic at premises, despite a lower profit margin will be generated.