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 prime locations of its properties 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 its satisfactory performance. MAJOR’s rating could be upgraded, if the company’s operating cash flow significantly improves to sustain the FFO to total debt ratio of 30%. In contrast, the rating downside may occur if the company aggressively utilizes debt to increase the total adjusted debt to capitalization ratio of more than 65%.
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 shares outstanding. 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 are the key revenue contributors. In the first nine months of 2015, the cinema exhibition segment comprised 68% of total revenue, while the advertising media segment made up 14%. The three remaining segments each contributed around 6% of total revenue.
As at September 2015, MAJOR operated 87 cinemas, offering a total of 576 screens. MAJOR currently has 35 cinema branches in Bangkok and its vicinity, 50 branches upcountry, and two branches overseas. After successfully launched a cineplex in Cambodia in mid 2014, the company opened the second cineplex abroad in Vientaine, the capital city of the Lao People’s Democratic Republic (Lao PDR), in August 2015. The cineplex is located in Vientiane Center shopping mall and consists of five cinema screens and eight bowling lanes. For bowling and karaoke, MAJOR currently has 19 branches, operating 357 bowling lanes, 225 karaoke rooms, and five 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. Admission revenue is driven by the number of films released as well as the quality and popularity of the films. While branch expansion is one of the key success factors which facilitates the accessibility, movie exhibitors face threats from product substitution, for example, home entertainment, mobile Internet, and other recreational activities. However, no other form of entertainment is as yet a perfect substitute for the movie-going experience.
MAJOR reported Bt8,623 million in revenue in 2014, a 12% increase from the previous year. The growth was mainly due to the strong increase in box office revenue and concession sales, supported by a number of popular Thai and Hollywood films plus 41 new screens. The movie content segment helped support the theater; however, it remained unprofitable. For the first nine months of 2015, even though the economy was weak, MAJOR’s total revenue increased by 2% year-on-year (y-o-y) to Bt6,605 million. The contributions from the cinema exhibition and the concession segment each grew 4%, supported by the opening of 67 more screens. The slower growth was partly affected by the lower admissions. However, MAJOR had higher average ticket price as it reduced promotion campaign. The company posted healthy growth of advertising sales of 12% y-o-y, outpacing a 6% y-o-y increase of total industry advertising expenditures. The ratio of operating income before depreciation and amortization to sales improved from 27.9% in 2013 to 29.0% in 2014 and 30.8% in the first nine months of 2015. The cinema exhibition and advertising segments contributed approximately 52% and 45% of MAJOR’s EBITDA (earnings before interest, tax, depreciation, and amortization), respectively. As the advertising media business incurred minimal additional costs to theater operation, it generates a substantial contribution to the company's bottom line.
MAJOR’s total debt increased from Bt4,563 million in 2014 to Bt4,685 million at the end of September 2015 as it added new branches. The total adjusted debt to capitalization ratio slightly increased from 59.9% in 2014 to 60.9% for the first nine months of 2015. The liquidity profile is considered satisfactory, funds from operations (FFO) increased from Bt1,437 million in 2013 to Bt2,031 million in 2014 and stood at Bt1,301 million for the first nine months of 2015. The softening FFO was impacted by increasing operating expenditure of new branches. The FFO to total debt ratio increased from 16.0% in 2013 to 22.7% in 2014, but declined to 19.3% (annualized, from the trailing 12 months) as of September 2015. The EBITDA interest coverage ratio improved, rising from 4.0 times in 2013 to 4.2 times in 2014 and to 4.6 times in the first nine months of 2015. During the next 12 months, MAJOR has to repay financial obligations of Bt3,353 million, of which Bt2,442 million is short-term promissory notes and Bt800 million is maturing debentures. As of 30 September 2015, the company had Bt402 million of cash on hand and Bt5,600 million of unused credit facilities from several banks which serve as flexibility to support its financial obligations. As of September 2015, the market value of MAJOR’s strategic investments was Bt6,580 million in total, derived from shareholdings in M Pictures Entertainment PLC (MPIC), Siam Future PLC (SF), Major Cineplex Lifestyle Leasehold Property Fund (MJLF), and PVR Ltd. The market value of these investments could be a cushion to MAJOR if needed.
During 2016-2018, TRIS Rating expects MAOR’s total revenue to grow at a moderate rate driven by its cinemas expansion plan. MAJOR’s operating profit margin is forecasted to stay at around 30%. MAJOR plans to expand it cinemas up to 1,000 screens by 2020. The expansion plan calls for MAJOR to invest around Bt1,100-Bt1,200 million per annum during 2015-2018. In addition, the company has budgeted to acquire film right of approximately Bt350 million each year. MAJOR’s leverage ratio is estimated to stay around 60%. The company’s FFO is expected to be over Bt2,000 million. The FFO to total debt ratio will be greater than 22% and the EBITDA interest coverage ratio will stay around 4 times.
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