2QFY17profit seen up 0.8%y-y on effective expense controls
FY17 profit view unchanged, rating upgrade to BUY with Bt35/share target price: We keep our FY17 profit outlookfor MAJOR at Bt1,302mn. Our FY17 target price also remains unchanged at Bt35/share, based on a P/E multiple of 24xbut more upside from current trading levels after a recent sharp retreat in share prices gives us an excuse to upgradeMAJOR shares to BUY from NEUTRAL.
2QFY17 profit seen up 0.8% y y on effective expense controls: For the quarter, total revenue is forecast to rise 3.7%y y to Bt2,890mn on expectations that (i) cinema admission revenue will edge up only 4% y y as a rise in guest countmay be tempered by a drop in ATP due to a growing number of cinema screens in the provinces, (ii) F&B revenue willjump 17% y y after a price increase for bucket set, (iii) cinema ad revenue will inch up a mere 1.4% y y, impacted bythe high base effect from the year before, (iv) bowling and karaoke revenue will drop 14.2% y y after the closure of 5bowling venues, (v) rental and service revenue will decline 17.4% y y due to rental discounts at Major Ratchayothinafter a drop in traffic in the wake of mass transit construction and the closure of True Fitness at Esplanade CineplexNgamwongwan Khae Rai, and (vi) revenue from MPIC will drift lower. Even though total cinema count increased by 64or 10.2% y y in 2QFY17, effective expense controls should help limit the pace of increase in costs and SG&A expensesto 4.1% and 3.8% y y respectively. On this basis, we estimate MAJOR will report a 2QFY17 net profit of Bt548mn, up0.8% y y, largely on account of effective expense controls.
Brighter prospects for 2HFY17, especially 4QFY17: In our view, 2HFY17 is expected to be better than 2HFY16, largelyhelped by a steady lineup of blockbuster Hollywood movies and the low base effect of 4QFY16 when MAJOR felt themourning effect for the late monarch. Data showed MTD revenue in Jul 2017 continued to fare better than the levelachieved in the same year ago period after the new rebooted Spider Man film Homecoming had raked in more thanBt200mn at theaters.