20171027-招商证券_香港_-IMAX_CHINA-01970.HK-3Q17_less_installation_but_passable_earnings_trend_7页_1mb

IMAX China (1970 HK) 3Q17 Performance and Outlook Summary

Core Content

IMAX China, a subsidiary of IMAX Corp, reported its financial performance for the third quarter of 2017 and provided guidance for the full year. The report outlines the company's revenue growth, net profit, and expansion strategy, while also comparing its valuation metrics to industry peers.

Main Points

• 3Q17 Performance:

  • Revenue increased by 23% YoY to US$36.6 million, driven by expansion.
  • Net profit for 3Q17 is estimated at US$11.8 million, with a net margin of 34%, matching the net margin of 1Q16.
  • IMAX box office in Greater China grew by 8% YoY.
  • IMAX China opened 11 new theatres in 3Q17, bringing the total number of operational theatres to 471.

• Installation and Guidance:

  • IMAX China expanded 47 theatres during the first nine months of 2017.
  • The report forecasts a significant increase in installation in 4Q17E, with an expected 78 new theatres.
  • The full year 2017E net profit is estimated at US$49 million, and 2018E at US$58 million.
  • The company's FY17E opening guidance was raised from 160 to 160~165.

• Valuation and Outlook:

  • The stock is currently trading at 18x FY18E P/E, lower than its 24x/24x/21x peers in China, Asia, and globally.
  • The target price (TP) is HK$24.40, based on a 20x FY18E P/E multiple, which is 15% below the China peers' valuation.
  • The report maintains a NEUTRAL rating, with the belief that the worst is behind, and potential catalysts for re-rating include:
    1. Further improvement in IMAX box office in 4Q17E.
    2. Guidance-beating installation numbers for FY17E.

• Financial Highlights:

  • Revenue is projected to grow from US$111 million (FY15) to US$167 million (FY19E).
  • Core net profit is expected to rise from US$41 million (FY15) to US$68 million (FY19E).
  • Core net margin is forecasted to increase from 37% (FY15) to 40% (FY19E).
  • EBITDA margin is projected to improve from 48% (FY15) to 66% (FY19E).
  • Operating margin is expected to rise from 38% (FY15) to 51% (FY19E).
  • Core ROE is forecasted to decrease from 26% (FY15) to 18% (FY19E).

• Valuation Ratios:

  • P/E is projected to decrease from 25.6x (FY15) to 15.6x (FY19E).
  • EV/EBITDA is expected to decline from 18.2x (FY15) to 7.7x (FY19E).
  • Net debt/equity is forecasted to be negative, indicating strong financial position.

• Key Data:

  • 52-week range (HK$): 16.84 / 41.80
  • Market cap (US$ mn): 1,047
  • Avg. daily volume (mn): 1.4
  • BVPS (HK$): 4.6

• Shareholding Structure:

  • IMAX Corp holds 68% of shares.
  • No. of shares outstanding: 357 million.
  • Free float: 32%.

• Peer Valuation Table:

  • IMAX China's TP is HK$24.40, with a 7% upside from the previous price of HK$22.90.
  • The company's EV/EBITDA is forecasted to decrease from 11.4x (FY17E) to 7.7x (FY19E).
  • IMAX China's P/E is projected to decrease from 21.5x (FY17E) to 15.6x (FY19E).

Summary of Key Financial Metrics

Investment Rating

• Industry Rating: OVERWEIGHT (expect sector to outperform the market over the next 12 months).
• Company Rating: NEUTRAL (expect stock to generate +10% to -10% over the next 12 months).

Analyst and Regulatory Disclosures

• The report is prepared by China Merchants Securities (HK) Co., Ltd. and is for informational purposes only.
• The analysts involved have certified that the views expressed reflect their personal opinions and that no compensation was tied to the report's recommendations.
• The document is subject to regulatory disclosures and is not intended for distribution in certain jurisdictions, including the U.S., Japan, and Canada, unless permitted by law.

Conclusion

IMAX China showed a 23% YoY revenue growth in 3Q17, with 11 new theatres added and a 34% net margin. Despite a 22% YoY drop in PSA, the company's backlog remains healthy, indicating strong future expansion potential. The NEUTRAL rating is maintained due to volatility in earnings, but the report highlights potential re-rating catalysts such as improved box office performance and installation guidance. The company's valuation is considered reasonable based on its 20x FY18E P/E target price, which is 15% below its China peers.