TRIS Rating 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 MAJOR’s exposure to uncontrollable factors, such as the number of films released, film popularity, shortening theatrical release periods prior to the distribution of films on DVD/VCD (digital versatile disc/video compact disc), competition with 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.
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 36% 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 2012, MAJOR operated 55 cinemas, offering a total of 409 screens and more than 98,000 seats. MAJOR currently has 26 cinema branches in Bangkok and vicinity, and 29 branches upcountry. MAJOR also has 24 bowling and karaoke branches, with 438 bowling lanes and 270 karaoke rooms. In addition, the company manages 50,820 square meters (sq.m.) of space for rent. In Bangkok, MAJOR has located its theaters across many business centers and key communities, using various brands to capture a broad range of customer groups.
MAJOR’s operating performance is partly supported by its strong relationships with film distributors. Admissions revenue is related to the number of films released as well as the quality and popularity of the films. A movie is a form of entertainment which is inexpensive and easily accessible, especially with a large number of theatre screens available nationwide. Two significant threats to movie exhibitors are piracy and the shortening release window, that is, the time between the release of a film at theaters and the release of the film on DVD/VCD. These threats could dampen the appetite for an out-of-home motion picture need. However, going out for a movie at the theatre is still an appealing lifestyle. No other form of entertainment is as yet a perfect substitute for the movie-going experience. The severe flood in late 2011 forced some of MAJOR’s branches to temporally close. Despite the closings, MAJOR reported a Bt6,748 million in total revenue in 2011, a 12% increase from the previous year. The growth was mainly due to the strong box office performance of both Thai and Hollywood films, i.e., Transformers 3, Harry Potter and the Deathly Hallows Part II, King Naresuan Part III and IV, and the continuing growth in advertising sales. For the first nine months of 2012, total revenue declined by 3% year-on-year (y-o-y) to Bt5,181 million, due to the releases of less popular films and a drop in bowling and karaoke sales. Only one Thai film generated a gross box office exceeding Bt100 million during 2012. The number of popular Hollywood films was also lower than in 2011. The cinema exhibition segment contributed approximately half of MAJOR’s total revenue and EBITDA (earnings before interest, tax, depreciation and amortization). Other segments, such as advertising, are more sensitive to economic conditions. However, advertising business generated substantial cash flow for the company at minimal additional cost. The ratio of operating income before depreciation and amortization to sales was 29% during 2010-2011 but declined to 26.6% in the first nine months of 2012. The softer margin was due to weaker performances in the film distribution and space rental segments. In 2012, the company discounted its rental rate for some tenants which were affected by the flood.
Total debt decreased from Bt3,530 million in 2010 to Bt2,987 million in 2011 and to Bt2,870 million at the end of September 2012, following debt repayments. The total debt to capitalization ratio decreased from 58.3% in 2010 to 54.7% in 2011 and to 50.3% at the end of September of 2012. The level of leverage is not expected to decline during the medium term. The company plans to add at least 100 new screens in 2013, a rate much higher than the 30-40 new screens added each year during 2009-2011. Thus, in 2013, capital expenditures are approximately Bt1,300 million. The company’s liquidity profile is considered satisfactory. Funds from operations (FFO) improved from Bt1,306 million in 2010 to Bt1,558 million in 2011 and stood at Bt976 million in the first nine months of 2012. The FFO to total debt ratio improved from 19.6% in 2010 to 25.2% in 2011 and 18.1% (non-annualized) in the first nine months of 2012. The EBITDA interest coverage ratio slightly improved, rising from 4.0 times in 2010 to 4.2 times in 2011 and to 4.5 times in the first nine months of 2012.
Company Rating: A- Issue Rating: MAJOR178A: Bt1,000 million senior debentures due 2017 A- Rating Outlook: Stable
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