TRIS Rating Co., Ltd. has assigned the rating of “A-” to the proposed issue of up to Bt1,000 million in senior debentures of Major Cineplex Group PLC (MAJOR). At the same time, TRIS Rating has affirmed the company rating of MAJOR at “A-” with “stable” outlook. The proceeds from the proposed debentures will be used to refinance the company’s existing debt. The ratings reflect the company’s leading position in the Thai movie exhibition industry, the prime locations of its properties, and its capable management team. These strengths are partially offset by exposure to uncontrollable factors such as the number of films released, film popularity, the shortening theatrical release period 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 shares. MAJOR’s five principal lines of business are cinema exhibition, bowling and karaoke, advertising media, space rental and services, and film distribution.
TRIS Rating said, as of March 2012, MAJOR operated 53 cinemas, offering a total of 383 screens and more than 93,700 seats. MAJOR has 28 cinema branches in Bangkok and vicinity, and 25 branches upcountry. MAJOR also has 25 bowling and karaoke branches, with 440 bowling lanes and 302 karaoke rooms. In addition, the company manages 49,086 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.
In the theater segment, MAJOR faces several significant threats from uncontrollable factors. These threats could dilute the appeal of an out-of-home motion picture offering as an entertainment choice. Admissions revenue is related to the number of films released as well as the quality and popularity of the films. During the past few years, the performance of MAJOR’s cinema exhibition segment demonstrated resilience despite several rounds of economic and political turmoil, because box office receipts are driven by film popularity. MAJOR also has the flexibility to schedule film release dates 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. MAJOR’s operating performance is also partly supported by its strong relationships with film distributors. In addition, no other form of entertainment is as yet a perfect substitute for the movie-going experience.
In 2011, MAJOR reported Bt6,748 million total revenue, a 12.1% increase from the previous year. The growth was mainly due to the release of many blockbuster films and the continuing recovery in advertising sales. For the first three months of 2012, total revenue rose by 13.4% year-on-year (y-o-y) to Bt1,667 million due to the release of more popular films and higher sales in the film distribution segment. The cinema exhibition segment contributed approximately half of MAJOR’s total revenue and EBITDA (earnings before interest, tax, depreciation, and amortization).
The ratio of operating income before depreciation and amortization to sales was approximately 29% during 2010-2011, but declined to 26% in the first three months of 2012. The deterioration was due to higher selling and administration expenses and an increase in the cost of service because digital projectors carry a higher rental cost. MAJOR’s leverage level declined but it is still considered high. Total debt decreased from Bt3,540 million at the end of 2010 to Bt2,994 million at the end of March 2012 following debt repayments. The adjusted total debt to capitalization ratio (including adjustment for long-term lease obligations) decreased from 58.3% in 2010 to 52.1% in 2011 and stood at 50.3% at the end of March of 2012. TRIS Rating expects that MAJOR will have capital expenditures of Bt800-Bt1,000 million per annum.
MAJOR’s liquidity profile is considered satisfactory. Funds from operations (FFOs) have been maintained at approximately Bt1,000 million annually since 2005, but improved to Bt1,200 million in 2010 and Bt1,218 million in 2011. For the first three months of 2012, FFOs stood at Bt318 million. The adjusted FFOs to total debt ratio improved from 18.2% in 2010 to 21.3% in 2011 and stood at 5.8% (non-annualized) in the first three months of 2012. The adjusted EBITDA interest coverage ratio also improved, rising from 4.0 times in 2010 to 4.2 times in 2011 and to 4.7 times in the first three months of 2012, said TRIS Rating. — End
Company Rating: Affirmed at A- Issue Rating: Up to Bt1,000 million senior debentures due within 2017 A- Rating Outlook: Stable
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