20160225-美银美林-IMAX_CHINA-01970.HK-All_metrics_beat_expectations,raise_estimates_12页_650kb

IMAX China FY15 Performance and Outlook Summary

Core Content

IMAX China delivered strong financial results for FY2015, surpassing both analyst and market expectations. The company's EBITDA/adj. profit reached US$53M/US$43M, outperforming the estimated US$49M/US$43M and the Street's US$50.8M/US$37.5M. Revenue growth was 41% YoY to US$111M, exceeding the estimate of US$103M. The per-screen average revenue increased by 10% to $1.34M, and the gross margin reached 65.4%, 279bps above the estimate. The company also installed 75 theater systems in 2015, surpassing the estimated 70 systems.

Main Points

• Strong FY15 Performance: IMAX China exceeded both the analyst and market estimates in terms of EBITDA, revenue, and system installations.
• Outlook for 2016: The company raised its 2016E EBITDA and EPS estimates by 8% and 11% respectively. It expects to install 100 theater systems in 2016, with revenue-sharing systems accounting for 60% of total installations, up from 58% in FY15.
• Business Model: IMAX China's asset-light model allows it to benefit from Chinese box office growth with minimal capital investment, as revenue-sharing leases typically last 10-12 years.
• Valuation: IMAX China is currently trading at 20x 2016E EV/EBITDA and 35x P/E, higher than the domestic M&E peers' 26x/32x. The price objective is HK$55.7, which is 27% above the current price of HK$43.90.
• Key Risks: Potential risks include worse-than-expected box office growth in China, fewer-than-expected new system signings, substantial RMB depreciation, and competition from other cinematic technologies.

Financial Highlights

Valuation Metrics

Key Risks

1. Worse-than-expected box office growth in China.
2. Fewer-than-expected new system signings.
3. Substantial RMB depreciation.
4. Declining popularity of IMAX format films.
5. Losing relevance in the film industry ecosystem.
6. Competition from other non-conventional cinematic technologies.
7. Regulatory changes in China.

Investment Rationale

IMAX China is seen as an attractively levered player in the fast-growing Chinese film industry, benefiting from its network expansion, relationships with domestic filmmakers, and a strong film slate. The company's unique business model and potential for multiple expansion are key strengths.

Analysts

• Mandy Chan, CFA – Research Analyst, Merrill Lynch (Hong Kong)
• Eddie Leung – Research Analyst, Merrill Lynch (Hong Kong)
• Sydney Zhang, CFA – Research Analyst, Merrill Lynch (Hong Kong)

Stock Data

• Price: 43.90 HKD
• Price Objective: 55.70 HKD
• Upside Potential: 27%
• 52-Week Range: 32.30 HKD - 60.00 HKD
• Market Value (mn): 15,599 HKD
• Equity Value (mn): 2,008 USD
• Fully Diluted Shares Outstanding: 355
• Book Value (US$): 0.44
• BPS (US$): 0.61
• ROE (2015E): 47.1%

Revenue Sharing and Backlog

• Revenue Sharing Systems: Expected to account for 60% of total systems installed in 2016, up from 58% in FY15.
• Backlog: As of end-2015, IMAX China had 215 systems in backlog, of which 158 were revenue-sharing.

Industry Position

IMAX China is a key player in the Greater China film industry, with historical successes such as Avatar, Transformers: Age of Extinction, and Furious 7. It is a leading cinematic technology provider and the exclusive licensee of the IMAX brand in the theater and film business.

Conclusion

IMAX China's FY15 results were strong, with revenue, EBITDA, and system installations exceeding expectations. The company's asset-light model and focus on revenue-sharing systems position it well for future growth. The analysts reiterate their Buy rating with a price objective of HK$55.7, based on a 20.3x EV/EBITDA multiple for 2016. However, the investment carries several risks, including box office performance, currency fluctuations, and regulatory changes.