Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

A buy-side analyst with over 15 years of experience investing in Asian markets and specializing in the mid-small cap space, emphasizing value investing in companies with good free cash flows/dividends and long-term holding horizons. 
Exempt Financial Adviser (EFA) under CrossASEAN Research Pte Ltd. It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity, Bottom-up Analyst

Major Cineplex : Core FCF Yield of 8.5% , Deleveraging and Dividend Payout Increase on the Cards ?

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

In my last insight <a href="https://www.smartkarma.com/insights/major-cineplex-core-fcf-yield-of-8-5-deleveraging-and-dividend-payout-increase-on-the-cards" target="_blank" data-smartkarma-citation="insights:33945" rel="noopener">Major Cineplex: Core FCF Yield of 8.5%, Deleveraging and Dividend Payout Increase on the Cards?</a> , I had highlighted how <a href="https://www.smartkarma.com/entities/major-cineplex-group-pcl" target="_blank" data-smartkarma-citation="entities:16662:1" rel="noopener">Major Cineplex Group (MAJOR TB)</a> had a very tough Q4 2019 which would be an overhang on the stock. With its results out on the 18th of February 2020, this overhang is gone and we can now focus on the core FCF story, with the only risk in the short term being the coronavirus. The execution for 2019 ( especially for Q4 given its 2018 comp was such a high base) by the management has been brilliant :A few key highlights for 2019 were: 1) Increase in its revenue contribution from advertising which is a high margin division in their business.2) Bringing net debt down by 8% from 3.33 bn baht to 3.075 bn baht. 3) Bringing SG&amp;A down from 25% of sales to 23.9% of sales. 4) A healthy dividend payout ratio of over 100%: With a dividend of 1.35 baht/share on a 23 baht share price, we now have a dividend yield of 5.8% on the stock. Investment Case 1) The company will improve its FCF yield to 10% by FY21 and delever to 21% net debt-equity from the current levels of 48%.  ( FY16 was 71% net debt to equity )2) At this FCF yield, it will be able to maintain &gt;100% dividend payout ratio enhancing the dividend yield to 7.5% by FY21. 3) In tough environments, the company has proven time and time again it cares about its shareholders and strives to maintain strict control on its CAPEX and in its operations as demonstrated by their SG&amp;A improvements and more recently improvement in business mix. There is a case for &gt;50% upside from the current share price over the next 2 years if the company continues to execute the way it has been so far. Key Risks1) The near term has been impacted by the fears of the coronavirus resulting in lower footfalls in  Q1 2020 so far.2) Content is king and so while the line up for 2020 has more movies than 2019, the quality of movies will also play an important role in defining the footfalls for 2020.

In my last insight Major Cineplex: Core FCF Yield of 8.5%, Deleveraging and Dividend Payout Increase on the Cards? , I had highlighted how Major Cineplex Group (MAJOR TB) had a very tough Q4 2019 which would be an overhang on the stock. With its results out on the 18th of February 2020, this overhang is gone and we can now focus on the core FCF story, with the only risk in the short term being the coronavirus. The execution for 2019 ( especially for Q4 given its 2018 comp was such a high base) by the management has been brilliant :A few key highlights for 2019 were: 1) Increase in its revenue contribution from advertising which is a high margin division in their business.2) Bringing net debt down by 8% from 3.33 bn baht to 3.075 bn baht. 3) Bringing SG&amp;A down from 25% of sales to 23.9% of sales. 4) A healthy dividend payout ratio of over 100%: With a dividend of 1.35 baht/share on a 23 baht share price, we now have a dividend yield of 5.8% on the stock. Investment Case 1) The company will improve its FCF yield to 10% by FY21 and delever to 21% net debt-equity from the current levels of 48%.  ( FY16 was 71% net debt to equity )2) At this FCF yield, it will be able to maintain &gt;100% dividend payout ratio enhancing the dividend yield to 7.5% by FY21. 3) In tough environments, the company has proven time and time again it cares about its shareholders and strives to maintain strict control on its CAPEX and in its operations as demonstrated by their SG&amp;A improvements and more recently improvement in business mix. There is a case for &gt;50% upside from the current share price over the next 2 years if the company continues to execute the way it has been so far. Key Risks1) The near term has been impacted by the fears of the coronavirus resulting in lower footfalls in  Q1 2020 so far.2) Content is king and so while the line up for 2020 has more movies than 2019, the quality of movies will also play an important role in defining the footfalls for 2020.

Major Cineplex: Resilient Quarter, Q4 Overhang Gone