TRIS Rating Co., Ltd. has assigned a “A-” to the proposed issue of up to Bt1,500 million in senior debentures of Major Cineplex Group PLC (MAJOR). At the same time, TRIS Rating has affirmed the company rating of MAJOR at “A-” with “stable” outlook. The ratings reflect the company’s leading position in the Thai movie exhibition industry, prime location of its properties, strong potential to expand upcountry, and capable management team. These strengths are partially offset by exposure to uncontrollable factors such as the number of films released, film popularity, shortening theatrical release periods prior to releases of DVD/VCD (digital versatile disc/video compact disc), competition from other entertainment alternatives, 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 its profit margins. Investment opportunities in the future or dividend payment should be prudently considered and not adversely affect the company’s financial position and liquidity. TRIS Rating will continue to assess the impact of the economic slowdown on the film production and the movie exhibition industries. If the ratio of secured debt to total asset increases significantly, the issue rating could be lowered.
TRIS Rating reported that 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 37% of the total shares. The five principal lines of business are cinema, bowling and karaoke, advertising media, space rental and services, and film distribution. In addition, the company’s portfolio includes a 37% stake in California WOW Xperience PLC, a 24% stake in Siam Future Development PLC, a 33% stake in Major Cineplex Lifestyle Leasehold Property Fund, a 40% stake in Thai Ticket Major Co., Ltd., and a 41% stake in M Pictures Entertainment PLC. The ability to offer various platforms of lifestyle and entertainment services allows MAJOR to create synergy through service bundling and cross-promotional campaigns.
As of December 2008, MAJOR operated 46 cinemas, with a total of 344 screens and more than 84,000 seats. There are 26 branches in Bangkok and its vicinity, and 20 branches upcountry. In Bangkok and the surrounding provinces, MAJOR has located its theaters across many business centers and key communities, using various brands to capture all customer groups. MAJOR plans to enhance its revenue base by building more modern multiplex cinemas upcountry, and capitalize on the growing popularity for Thai films upcountry.
TRIS Rating said, 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. However, MAJOR faces several significant threats: the proliferation of pirated home video products, a shorter time between theatrical release and distribution through DVD/VCD, and competition from other entertainment alternatives. These threats could dilute the appeal of an out-of-home motion picture offering. However, no other forms of entertainment are as yet perfect substitutes for the moviegoing experience.
In 2008, MAJOR’s total revenue was Bt5,328 million, an 8.2% decrease from the previous year. Admission revenue decreased due to less attractive films released and the postponement of two mega blockbusters, King Naresuan 3 and Harry Potter & the Half-blood Prince, to 2009. About half of revenue was from the cinema business. In 2006 and 2007, MAJOR experienced a satisfactory growth of 8.3% and 13.6%, respectively, partly from releases of Pirates of the Caribbean and Mission: Impossible III in 2006 and King Naresuan 1 & 2 in 2007. The ratio of earnings before interest, tax, depreciation, and amortization (EBITDA) to sales increased from 34% in 2007 to 38% in 2008. The increase was mainly due to margin improvement in the film distribution and space rental business, topped with reduction in selling and administration expenses. Cash flow has increased significantly, rising from Bt730 million in 2004 to Bt1,129 million in 2005 as a result of the EGV acquisition in late 2004. Funds from operations (FFO) was maintained over at Bt1,200 million annually during the past three years. Total debt (including capitalized annual leases) increased from Bt6,212 million in 2007 to Bt6,485 million in 2008, as the company borrowed more long-term debt to finance cinema expansion. Lease obligations are not expected to increase substantially as MAJOR uses a revenue-sharing scheme for expansion. The total debt to capitalization ratio increased from 52.5% in 2007 to 55.2% in 2008. This ratio will continue to increase in the coming year as the company has a plan to add new branches and build a new standalone multiplex cinema. The expansion plan will be financed by a combination of operating cash flow and debt. The company’s liquidity is considered sufficient, as the FFO to total debt ratio was 20%-21% during 2005-2008 while the EBITDA interest coverage ratio was maintained at an average of 4.5 times. The economic downturn may impact total revenue. However, with the revenue-sharing nature of the movie exhibition industry, MAJOR is expected to sustain sufficient profitability, said TRIS Rating. -- End
Company Rating: Affirmed at A- Issue Rating: Up to Bt1,500 million senior debentures due within 2014 A- Rating Outlook: Stable
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