20170206-申万宏源研究_香港_-IMAX_CHINA-01970.HK-佳片有约_32页_2mb

IMAX China 2017 Investment Report Summary

Core Content

IMAX China is a leading provider of IMAX format movie screenings in the Greater China region. The report provides a comprehensive analysis of the company's financial performance, business model, and growth prospects, concluding with an "Outperform" rating and a target price of HK$42.5.

Main Points

• Company Overview:
  IMAX China was established in 2010 as a spin-off of IMAX Corp and is the exclusive licensee of the IMAX brand and technology in the region. It offers an end-to-end solution for IMAX format films, including installation, maintenance, and revenue sharing.

• Market Position:
  IMAX China has a strong market presence, with 424 IMAX theatres as of end-2016. These theatres generate significantly higher per-screen revenue compared to traditional formats. The company's branding and technology provide a unique immersive experience.

• Business Model:
  IMAX China earns revenue through two main segments:

  • Theatre Business: Sales of IMAX systems and revenue sharing with exhibitors.
  • Film Business: Conversion of films to IMAX format and revenue sharing with production studios.
    The company is shifting towards revenue-sharing arrangements to reduce upfront costs and increase exposure to box office performance.

• Financial Highlights:

  • Revenue (US$m): 78 (2014), 111 (2015), 122 (2016E), 144 (2017E), 170 (2018E)
  • Net Income (US$m): 23 (2014), -182 (2015), 35 (2016E), 51 (2017E), 66 (2018E)
  • EPS (US$): 0.09 (2014), -0.62 (2015), 0.10 (2016E), 0.14 (2017E), 0.18 (2018E)
  • Expected EPS growth: 45.4% in 2017E and 30.4% in 2018E
  • Target Price: HK$42.5 (14.1% upside from closing price of HK$37.2)
  • Valuation: 38.7x 2017E PE

• Network Expansion:
  The company has maintained a steady pace of installations, with approximately 100 systems added annually. By end-2016, the network had reached 424 theatres, and it is expected to grow to 529 by end-2017E and 625 by 2018E.

• Geographic Expansion:
  IMAX China is expanding into lower-tier cities, with 60.0% of its network in such cities as of 2016 and projected to reach 65.5% by 2019. This strategy is aimed at capturing growth in these markets.

• Growth Drivers:

  • Continued expansion of the IMAX network.
  • Improved box office performance in 2017 due to a lineup of high-profile overseas films.
  • Revenue-sharing models that enhance profitability and reduce capital expenditure for partners.

• Competitive Advantage:

  • High per-screen average (PSA) compared to peers.
  • Consistent and high-quality visual and audio experience.
  • Strong brand recognition and customer preference for IMAX format.

Key Information

• Technology and Services:
  IMAX China uses both digital xenon and laser-based projection systems. It also offers digital remastering (DMR) to enhance film quality. The company's maintenance and service policies ensure consistent performance across its network.

• Partnerships:
  Major partners include Wanda Cinema, CJ CGV, SFC/SUC, and Jinyi Cinemas. These partners are increasingly adopting revenue-sharing models, which is expected to boost the company's revenue share from 57.7% in 2015 to 65.8% in 2019E.

• Market Penetration:
  As of end-2016, IMAX systems account for 0.94% of total screens in mainland China, close to the global IMAX network's penetration rate of 1%. The company expects to increase its market share to 1.19% by 2019E.

• Future Outlook:
  The report anticipates continued growth in both revenue and profitability, driven by network expansion and improved box office performance. The company is also developing a lower-cost laser-based system for broader adoption.

Conclusion

IMAX China is positioned to benefit from the growing demand for premium cinematic experiences and its strategic shift towards revenue-sharing models. With a strong network, high PSA, and a growing presence in lower-tier cities, the company is expected to deliver solid earnings growth and is given an "Outperform" rating.