KGI Securities reiterated a rating “Outperform” on Major Cineplex Group Public Company Limited (MAJOR) with a remaining target price of ฿22.20/share, due to an expected earnings improvement QoQ in 4Q20, a strong recovery in 2021 and a cheap valuation compared to peers, seeing short-term obstacle, but growth still expected in 2021
Though MAJOR closed its services in Samut Sakhon, and re-instituted 1 empty seat : 2 seats since December 20, 2020 due to the recent COVID-19 outbreak, KGI foresees minimal impact to the company’s 4Q20 earnings. For 2021, strong earnings growth is still expected backed by easing of COVID-19 and strong movie line up from Hollywood. KGI core earnings forecasts are maintained at a loss of Bt755n in 2020 a profit of Bt941mn in 2021
KGI believes that MAJOR’s 4Q20 earnings would have minimal impact from the recent local outbreak of COVID-19 as i) the lockdown has been limited to Samut Sakhon, and ii) negative sentiment from the latest outbreak occurred in late December 2020 while movies before that saw impressive revenues, particularly E-Rium-Sing (Thai movie). KGI, therefore, maintained its earnings forecast at a core loss of Bt755mn in 2020, implying a core profit of Bt100mn in 4Q20, improving from a core loss of Bt119mn in 3Q20 but dropping from a core profit of Bt167mn in 4Q19.
Despite the new wave of COVID-19 in Thailand since December 2020, KGI still believes that MAJOR would turn back to profit in 2021 supported by an expected recovery in cinema revenue (core business) and better net margin from 2Q21 onward. Key factors that are expected to push the company’s revenue and margin improvement in 2021 are i) low base in 2020, ii) new wave of COVID-19 outbreak is expected to ease in 1Q21, iii) stronger movies from Hollywood as there are many big format movies targeted to be released such as Fast & Furious 9, Bond 25: No Time To Die, Black Widow, Top Gun 2: Maverick, and Matrix 4, and iv) more Thai movies from both MPIC and partners.
Since current lockdown restrictions have been limited to Samut Sakhon, KGI is maintaining its core earnings forecast at a loss of Bt755mn in 2020 before turning to a profit of Bt941mn in 2021. This is because i) KGI expects an insignificant impact to 4Q20 earnings from COVID-19, ii) the latest outbreak is expected to ease within 1Q21 when there are unlikely to be big format movies from Hollywood, and iii) strong growth is expected in 2Q21 along with a strong movie line up from Hollywood.
However, there are risks like lower than expected cinema revenue and outbreak lasting longer than expected.