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, the siting of its properties which are in prime locations throughout the country, 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, 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. Any further investments or dividend payments should not adversely affect the company’s financial strength and liquidity.
MAJOR is the largest movie exhibitor in Thailand, with approximately 70% market share in terms of first-week box office sales. The company was founded in 1995 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. In the first nine months of 2013, the cinema exhibition and the advertising segments were the key contributors to MAJOR’s total revenue. The cinema exhibition segment comprised 69% of total revenue, while the advertising segment made up 14%. The other three segments each contributed around 6% of total revenue.
As of September 2013, MAJOR operated 64 cinemas, offering a total of 449 screens and 107,488 seats. MAJOR currently has 31 cinema branches in Bangkok and vicinity, and 33 branches upcountry. MAJOR also has 22 bowling and karaoke branches, with 382 bowling lanes, 246 karaoke rooms, and three ice skate rinks. In addition, the company manages 57,376 square meters (sq.m.) of space for rent. Besides its five stand-alone movie complexes, MAJOR has located its theaters adjacent to modern trade and department stores, 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 and a large number of theatre screens available nationwide. Admissions revenue is driven 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. Movie exhibitors face threats from product substitution, for example home entertainment, mobile Internet, and other recreational activities. However, going out for a movie at the theatre is still an appealing choice. No other form of entertainment is as yet a perfect substitute for the moviegoing experience.
Despite the weaker film line-up compared with 2011, MAJOR reported 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. For the first nine months of 2013, total revenue increased by 14% year-on-year (y-o-y) to Bt5,915 million due to the strong box office performance of both Thai and Hollywood films, i.e., Pee Mak Phra Kanong, Iron Man 3, and The Fast and Furious 6, and the continuing growth in advertising sales. The ratio of operating income before depreciation and amortization to sales was 29% during 2010 and 2011 but declined to 24.9% in 2012. The softer margin was due to weaker performances in the film distribution and space rental segments. However, the profit margin recovered to 29% in the first nine months of 2013, as sales rose in the cinema exhibition, concession, and advertising segments. The cinema exhibition segment contributed approximately 60% of MAJOR’s EBITDA (earnings before interest, tax, depreciation, and amortization). The advertising business also generated substantial cash flow for the company at minimal additional cost.
Total debt increased from Bt2,852 million as of 2012 to Bt4,358 million as of September 2013. The new borrowings were used to build new branches, install digital projectors in theaters, and make a tender offer for M Pictures Entertainment PLC. The total debt to capitalization ratio increased from 55.8% in 2012 to 58.4% in the first nine months of 2013. The level of leverage is expected to decline slightly in the medium term. The investment in digital projectors will be partly subsidized by film studios over the medium term. The company plans to add at least 50 new screens annually during the next three years. Thus, capital expenditures will be approximately Bt600 million per annum. The liquidity profile is considered satisfactory, though funds from operations (FFO) slightly declined from Bt1,558 million in 2011 to Bt1,347 million in 2012 and stood at Bt1,122 million in the first nine months of 2013. The FFO to total debt ratio was around 20% during 2012 through the first nine months of 2013. The EBITDA interest coverage ratio improved, rising from 3.8 times in 2012 to 4.6 times in the first nine months of 2013.
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