Major Cineplex Group PCL (OTC:MCGRF) is a leading cinema operator in Thailand with 815 screens in Thailand and neighboring countries. It has a considerable contribution to the growth of Thai box office. The company has a strong growth and upside potential, according to a thesis by AsianCenturyStocks.
Assuming a full recovery in cinema attendance by 2022, the stock will trade at a 2023e PE ratio of 10.3x, offering upside of +85% if the stock were to trade at its historical average PE ratio of 19x. This multiple is well justified given the long runway of growth, limited debt, excellent management team and high return on capital, according to the thesis.
At a point where European and North American box offices are struggling with their revenue statistics, Major Cineplex is growing at 10-15% every year. The number of screens per capita in Malaysia is only 13% of that in United States. The Thai box office is outperforming its competitors with a considerable margin. It has greatly utilized the opportunities and capitalized on them, thus giving Major Cineplex a fruitful outcome.
During the lockdowns of COVID-19, Major Cineplex witnessed some hard times. A few months of full closure of cinemas led to cash burn. Since the entire operation was closed across the country and worldwide, the revenue was stagnant. Although the operations for the company re-opened, the capacity of watchers is only 25%. Looking into the financial aspects, some investors may have considered that during the pandemic, the competitors like Netflix (NFLX) may have captured the industry. But, according to the thesis, Major Cineplex remains unaffected from Netflix which started its operations in 2017 in Thailand.
The advantageous point for the success of Major Cineplex is that blockbuster content is only released in cinemas and people mostly avoid the online streaming services. According to the article, the theatrical release window is believed to remain at 90+ days for the future. It has been argued that cinemas and Netflix are two major competitors, but they are not direct substitutes – mainly because the Hollywood studios release the blockbuster movies and content in cinemas first. Here is what the report says about the current environment and their expectations:
Major Cineplex is guiding for a gradual increase in capacity from the current 25% up to 100% in the next year or two. Landlords have started to offer rent concessions from the third quarter 2020 onwards. The company is guiding for a net profit break-even in 4Q20. Liquidity and debt levels are modest, so the company should not have any problems weathering the storm.
Assuming a full recovery in cinema attendance by 2022, the stock will trade at a 2023e PE ratio of 10.3x, offering upside of +85% if the stock were to trade at its historical average PE ratio of 19x. We believe that this multiple is well justified given the long runway of growth, limited debt, excellent management team and high return on capital.
We don’t think Major Cineplex is such a great investment idea at the moment. We just shares a free stock pick from our monthly newsletter in a new article that we expect to double over the next 12-24 months.
Disclosure: None. This article is originally published at Insider Monkey.