TRIS Rating Co., Ltd. has affirmed the company and senior debenture ratings of Major Cineplex Group PLC (MAJOR) at “A-” with “stable” outlook. The ratings reflect the company’s leading position in the Thai movie exhibition industry, its prime location properties, and capable management team. These strengths are partially offset by exposure to uncontrollable factors such as the number of films released, film popularity, shortening theatrical release periods prior to the distribution of DVD/VCD (digital versatile disc/video compact disc), competition from other forms of entertainment, and the proliferation of pirated home video products. The “stable” outlook reflects the expectation that MAJOR will be able to maintain its leading market position in the movie exhibition industry and sustain a satisfactory level of performance. Investment opportunities or dividend payments should be prudently considered and should not adversely affect the company’s financial position and liquidity.
TRIS Rating reported that MAJOR is the largest movie exhibitor in Thailand, with approximately 80% market share in terms of first-week box office sales. The company was founded in 1994 by Mr. Vicha Poolvaraluck, who currently owns 37% of the total shares. MAJOR’s five principal lines of business are cinema exhibition, bowling and karaoke, advertising media, space rental and services, and film distribution.
As of September 2011, MAJOR operated 51 cinemas, offering a total of 373 screens and more than 90,000 seats. MAJOR has 27 cinema branches in Bangkok and vicinity, and 24 branches upcountry. MAJOR also has 26 bowling and karaoke branches, with 480 bowling lanes and 309 karaoke rooms. In addition, the company manages 52,517 square meters (sq.m.) of space for rent. In Bangkok and the surrounding provinces, MAJOR has located its theaters across many business centers and key communities, using various brands to capture a broad range of customer groups.
TRIS Rating said, MAJOR’s operating performance is partly supported by its strong relation-ships with film distributors. Admissions revenue is related to the number of films released as well as the quality and popularity of the films. However, as mentioned above, MAJOR faces several significant threats from uncontrollable factors. These threats could dilute the appeal of an out-of-home motion picture offering. However, no other form of entertainment is as yet a perfect substitute for the moviegoing experience.
Despite the political unrest in the first half of 2010, MAJOR reported a Bt6,021 million total revenue in 2010, an 8.3% increase from the previous year. Even though, movie admissions were flat in 2010, advertising sales rebounded significantly from its hard hit in 2009. In addition, revenue grew in these areas: upfront fees from new retail spaces and the film studio, a new business. For the first nine months of 2011, total revenue leaped by 17% year-on-year (y-o-y) to Bt5,332 million. The growth was mainly due to the release of many blockbuster films and the continuing recovery in advertising sales. However, the company performance is expected to soften in the fourth quarter of 2011, as 14 branches were flooded and some advertising sales were postponed due to the severe flooding in late 2011. The cinema exhibition segment demonstrated resilience despite rounds of economic and political turmoil, as box office receipts are driven by film popularity. MAJOR also has flexibility to schedule film releases to maximize sales. A movie is a form of entertainment which is inexpensive and easily accessible, especially with a large number of theatre screens available nationwide. The cinema exhibition segment contributed approximately half of MAJOR’s total revenue and EBITDA (earnings before interest, tax, depreciation and amortization). Other segments, however, are more sensitive to economic conditions. For example, the advertising business reported a 38% decline in revenue in 2009 due to the effects of the worldwide economic slowdown, but grew by 29% y-o-y in 2010.
The ratio of MAJOR’s operating income before depreciation and amortization to sales increased from 26% in 2009 to 29% in 2010 and to 30% in the first nine months of 2011. The improvement was due to a continuous recovery in high-margin advertising sales and the release of several blockbuster films. MAJOR’s leverage level declined but is considered high. Total debt decreased from Bt3,543 million at the end of 2010 to Bt3,108 million at the end of September 2011 following debt repayments. TRIS Rating expects that MAJOR will have capital expenditures of Bt800-Bt1,000 million per annum.
The total debt to capitalization ratio decreased from 60.8% in 2009 to 58.3% in 2010 and stood at 52.6% at the end of September of 2011. The company’s liquidity profile is considered satisfactory. Funds from operations (FFO) have been maintained at approximately Bt1,000 million annually since 2005, improving to Bt1,198 million in 2010 and Bt972 million in the first nine months of 2011. The FFO to total debt ratio improved from 14.7% in 2009 to 18.1% in 2010 and 16.8% (non-annualized) in the first nine months of 2011. The EBITDA interest coverage ratio also improved, rising from 2.9 times in 2009 to 4.0 times in 2010 and to 4.6 times in the first nine months of 2011, said TRIS Rating. - End
Company Rating: Affirmed at A- Issue Rating: MAJOR126A: Bt1,500 million senior debentures due 2012 Affirmed at A- Rating Outlook: Stable
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