TRIS Rating has assigned the rating of “A-” to the proposed issue of up to Bt800 million in senior debentures of Major Cineplex Group PLC (MAJOR). At the same time, TRIS Rating has affirmed the company and current senior debenture ratings of MAJOR at “A-” with “stable” outlook. The proceeds from the proposed debentures will be used to refinance MAJOR’s maturing debentures. 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.
At the end of March 2013, MAJOR operated 59 cinemas, offering a total of 426 screens and more than 100,000 seats. MAJOR currently has 32 cinema branches in Bangkok and vicinity, and 27 branches upcountry. Mostly located in the same site as its cinemas, MAJOR also has 23 bowling and karaoke branches, with 412 bowling lanes and 274 karaoke rooms. In addition, the company manages 51,552 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 factored by 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 through home entertainment media. 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 moviegoing experience.
Despite the weaker film line up compare with 2011, MAJOR reported a Bt6,965 million in total revenue in 2012, a 3% increase from the previous year. The growth was mainly due to the continuing growth in advertising sales and concession sales. 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 24.9% in 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 Bt2,987 million in 2011 to Bt2,852 million in 2012, following debt repayments. The total debt to capitalization ratio decreased from 54.7% in 2011 to 49.7% in 2012. The level of leverage is not expected to decline in 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. Although, funds from operations (FFO) declined from Bt1,558 million in 2011 to Bt1,347 million in 2012, the FFO to total debt ratio improved from 19.6% in 2010 to around 25% during 2011-2012. The EBITDA interest coverage ratio was approximately 4 times during 2010-2012.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2013, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.