As expected, MAJOR announces impressive 4Q02 earnings

Major Cineplex Group (MAJOR) reported 4Q02 profit growth yesterday of 14% qoq to Bt97mn, in line with expectations. Theatre income soared 33% on the back of three new branch openings, which added 25 theatre screens, as well as higher revenues per screen from Bt3.4mn in 3Q02 to Bt3.8mn in 4Q02.

MAJOR has become the largest theatre chain, accounting for 50% market share. The company operates 12 branches including 111 theatres with 27,900 seats, 174 bowling lanes, 17,809 sq.m rental space and 111 ad screens. We expect net profit to grow 58% to Bt515mn this year due to 1) full-year contributions from all branches opened last year, 2) two additional cineplexes to be opened this year, 3) an expected increase in the number of movies to be shown and 4) higher average ticket prices.

The company’s financial position remains strong with net cash and solid cash flow of Bt644mn. MAJOR also announced a dividend of Bt2/share and spilt par to Bt1. We like the company in terms of its growth prospect and healthy financial status. However, the stock has limited upside to our fair value estimate of Bt88. We are maintaining our BUY rating on MAJOR, but we prefer other entertainment stocks which offer more upside potential, like BEC, GRAMMY and GMMM with upside to our fair value estimates of 21%, 28% and 39%, respectively.

4Q02 earnings results

Income statement (Bt mn)	4Q02	3Q02	QOQ	2002	2001	YOY
Sales	563	459	23%	1,818	1,275	43%
Theatre	404	303	33%	1,247	849	47%
Bowling	58	55	6%	216	174	25%
Rental income	59	61	(4%)	224	189	18%
Advertising	42	40	5%	131	62	111%
COG	330	266	24%	1,038	782	33%
Gross margin (%)	41.46%	42.17%	N.A.	42.90%	38.67%	N.A.
SG&A	116	93	25%	370	272	36%
Interest expense	1	1	13%	14	46	(69%)
Net profit	97	85	14%	326	83	292%
EPS (Bt)	0.83	0.72	14%	2.78	1.77	57%

Source : Kim Eng Research

• MAJOR’s 4Q02 profit rose 14% qoq to Bt97mn. This was largely due to a 23% growth in sales with the opening of three new cineplexes at Tesco Bangkapi, Seri Center and Central Rama II.

• The company’s main revenues, theatre income, surged 33% qoq to Bt404mn on the back of three new cineplex openings, which added 25 theatres with 4,750 seats. Also, the company benefited from an increase in revenue per screen from Bt3.4mn in 3Q02 to Bt3.8mn in 4Q02, or an 18% qoq increase in revenue per seat to Bt14,727. In 4Q02, MAJOR’s average ticket prices rose 4.4% qoq to Bt101.6 due to a hike in weekend ticket prices for new theatres from Bt100 to Bt120 and successful movies like Harry Potter II, Lord of the Rings II and the Thai movie, Mekong Full Moon Party.

• Bowling income grew 6% qoq to Bt58mn as a result of 42 bowling lanes being added in the Seri Center and Central Rama II Cineplexes. We see a slight drop in rental income by 4% as a result of an extra income from one-time utility fees booked in 3Q02. Advertising income went up 5% due to an additional 25 ad screens.

• MAJOR’s gross margins slightly narrowed from 42.2% in 3Q02 to 41.5% due to a significant decline in gross margins for the company’s bowling unit on the reclassification of a depreciation item. However, the theater business saw an improvement in margins from 35.0% to 36.6%.

• MAJOR generated operating cash flow of Bt644mn for 2002 and has healthy financial position with net cash of Bt98mn.