20160329-招商证券_香港_-IMAX_CHINA-01970.HK-Unique_with_strong_growth_+_high_visibility_+_widening_margin_42页_3mb_3mb

Summary of IMAX China (1970 HK) Company Report

Core Content

IMAX China is a leading non-conventional theatre operator in China with a strong growth trajectory, high visibility, and improving margins. It is the China arm of IMAX Corp, a global leader in cinematic technology, and has established itself as the dominant player in the market with an 81% market share. The company is expanding its network of IMAX theatres, with projections of reaching 505 theatres by FY17E, and is shifting its business model from one-off sales to revenue sharing, which is expected to enhance profitability and margin expansion.

Main Businesses

IMAX China operates in two major segments:

1. Theatre Business:

   • Provides IMAX theatre systems to exhibitors through one-off sales and revenue sharing arrangements.
   • Revenue sharing includes hybrid (9%) and full (16-17%) models.
   • Offers additional services such as planning, installation, maintenance, and technical support.

2. Film Business:

   • Converts Hollywood and Chinese films into IMAX format using DMR technology.
   • Shares box office revenue from these films with exhibitors, receiving 9.5-12.5% of the box office.
   • Currently, DMR conversion for Chinese films is outsourced to IMAX Corp, but plans to establish local facilities.

Financial Performance and Projections

• Revenue: Expected to grow from US$111mn in FY15 to US$182mn in FY18E, with a CAGR of 33.3% in FY16E and 11.8% in FY17E.
• Core Net Profit: Projected to increase from US$41mn in FY15 to US$88mn in FY18E, with a CAGR of 63.3% in FY16E and 19.8% in FY17E.
• Core Net Margin: Expected to improve from 37% in FY15 to 46% in FY17E.
• Gross Margin: Projected to increase from 68% in FY16E to 71% in FY17E.
• EPS: Expected to rise from US$0.12 in FY15 to US$0.25 in FY18E.

Valuation and Investment Thesis

• Current P/E Ratio: 33x for FY16E, which is lower than its China peers (45x) but higher than Asian and global peers (24x/23x).
• Target Price: HK$55.30 (12-month), implying a 40x P/E ratio for FY16E, suggesting an undemanding valuation.
• PEG Ratio: 1.1x, indicating reasonable growth potential.
• Investment Thesis: IMAX China is a niche market leader in a rapidly growing sector, benefiting from strong brand recognition, a favorable supply chain, and a shift to a more sustainable revenue model.

Key Drivers of Growth

• Expansion of IMAX Theatres: Expected to grow at 25% CAGR from FY15 to FY18E, driven by demand from exhibitors.
• Screen Yield Improvement: Enhanced utilization of IMAX screens, especially for Chinese films during summer blackouts.
• Stable and High ASP: IMAX format films command higher prices than traditional theatres, contributing to higher margins.
• Recurring Revenue Model: Transition from one-off sales to revenue sharing increases long-term profitability and margin expansion.

Risks and Catalysts

• Risks:

  • Sell-off by pre-IPO investors with lock-up period expiring in July 2016.
  • Potential relationship deterioration with key clients (exhibitors).
  • Threats from substitutes as technology evolves.

• Catalysts:

  • Faster-than-expected expansion.
  • Stronger-than-expected IMAX box office performance.

Market Positioning

• Strong Brand Awareness: IMAX is the most well-known non-conventional cinema technology brand in China.
• Premium Pricing: IMAX format films charge 90% more than the China average, enhancing profitability but also exposing the company to price sensitivity.
• Technological Superiority: IMAX screens offer larger sizes and higher resolution (up to 6K), providing a more immersive experience compared to competitors (up to 4K).

Conclusion

IMAX China is positioned as a leader in the non-conventional cinema technology sector, with a unique business model, strong growth drivers, and a favorable valuation. The company is expected to benefit from the booming Chinese movie industry, technological advancements, and a shift in consumer demand towards immersive experiences. Its transition to a revenue sharing model and expansion into lower-tier cities are key to sustaining growth and profitability.