TRIS Rating has affirmed the company and senior unsecured 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 sites of its properties which are in prime locations throughout the country, and its capable management team. These strengths are partially offset by MAJOR’s exposure to uncontrollable factors, such as the number of films released, film popularity, the risk of increasing competition from the proliferation of entertainment alternatives, and film piracy. The “stable” outlook reflects the expectation that MAJOR will maintain its leading market position in the movie exhibition industry and sustain a satisfactory performance. The expansion abroad will enhance its market base and alleviate concentration risk. The greater cash flow diversification will support its credit profile. 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 34% of the total shares. MAJOR’s five principal lines of business are cinema exhibition, bowling and karaoke, advertising media, space rental and services, and movie content. The cinema exhibition and the advertising segments have been the key contributors to MAJOR’s total revenue. In the first nine months of 2014, the cinema exhibition segment comprised 67% of total revenue, while the advertising media segment and the movie content segment made up 13% and 9%, respectively. The two remaining segments each contributed around 6% of total revenue.
As at September 2014, MAJOR operated 74 cinemas, offering a total of 504 screens and 120,873 seats. MAJOR currently has 31 cinema branches in Bangkok and its vicinity, 42 branches upcountry, and one branch in Cambodia. In June 2014, the company launched its first overseas cinema complex in Cambodia’s capital city, Phnom Penh. The cinema complex is located in Aeon Mall, a Japanese Department store, consisting of seven cinema screens and 14 bowling lanes. MAJOR has a total of 21 bowling and karaoke branches, operating 389 bowling lanes, 240 karaoke rooms, and six ice skating rinks. MAJOR owns five stand-alone movie complexes, which offer commercial space for rent of 50,489 square meters (sq.m.). Other than its stand-alone complexes, MAJOR has located its theaters adjacent to modern trade retail outlets and department stores. MAJOR uses several cinema brands to capture a broad range of customer groups.
MAJOR’s solid business profile is partly supported by its strong relationships with film distributors and the large number of theatre screens it has 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 for recreation. No other form of entertainment is as yet a perfect substitute for the movie-going experience.
MAJOR reported Bt7,711 million in revenue in 2013, an 11% increase from the previous year. The growth was mainly 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, added by the continuing growth in advertising sales and concession sales. For the first nine months of 2014, even though the economy was weak, MAJOR’s total revenue increased by 10% year-on-year (y-o-y) to Bt6,499 million. Contributions from cinema exhibition and the concession segment grew 6.6% due mainly to the opening of 10 more branches. Moreover, the company posted healthy growth of advertising sales of 6% y-o-y, outpacing a 9.3% y-o-y decline of total industry advertising expenditure. The movie content segment also contributed a growth to the company’s top line, however, it continued to generate net loss. The ratio of operating income before depreciation and amortization to sales improved from 24.8% in 2012 to 27.9% in 2013 and 30% in the first nine months of 2014. The cinema exhibition and advertising segment contributed approximately 60% and 40% of MAJOR’s EBITDA (earnings before interest, tax, depreciation, and amortization). As the advertising media business incurred minimal additional costs to theater operation, it generates a substantial contribution to the company's cash flow.
MAJOR’s total debt increased from Bt2,852 million in 2012 to Bt4,820 million in 2013 and declined to Bt4,577 million at the end of September 2014. The increase was due to the expansion of its new branches, the installation of digital projectors, and the tender offer for M Pictures Entertainment PLC (MPIC). As a result, the total debt to capitalization ratio increased from 56.1% in 2012 to 63% in 2013, and stood at 61.3% for the first nine months of 2014. MAJOR plans to expand it cinemas up to 1,000 screens by 2020. The expansion plan calls for MAJOR to invest around Bt1,000 million in 2014 and Bt1,300-Bt1,600 million per annum during 2015-2017. Thus, MAJOR’s leverage ratio is estimated to stay around 60%.
The liquidity profile is considered satisfactory, funds from operations (FFO) increased from Bt1,368 million in 2012 to Bt1,437 million in 2013 and to Bt1,588 million for the first nine months of 2014. However, the recent rise in debt caused the FFO to total debt ratio to decline from 21.4% in 2012 to 15.8% in 2013. The ratio improved to 21.7% (annualized, from the trailing 12 months) as of September 2014. The EBITDA interest coverage ratio improved, rising from 3.8 times in 2012 to 4 times in 2013 and to 4.5 times in the first nine months of 2014. During the next 12 months, MAJOR has to repay financial obligations of Bt2,335 million, of which Bt2,220 million are short-term promissory notes which were used to finance the working capital requirement. As of 30 September 2014, the company had Bt362 million in cash on hand and Bt2,215 million of unused credit facilities from several financial institutions which is sufficient to support its financial obligations. As of September 2014, the market value of MAJOR’s strategic investments were worth Bt4,710 million in total, derived from shareholding in MPIC, Siam Future PLC (SF), and Major Cineplex Lifestyle Leasehold Property Fund (MJLF). The high market value of these investments serves as a cushion and financial flexibility to MAJOR.
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