20160722-东英亚洲证券-IMAX_CHINA-01970.HK-Installations_target_raised_but_valuation_remains_rich_11页_1mb

Equity Research Summary: IMAX China (1970 HK)

Core Content

IMAX China Holding, Inc. is a holding company that operates through its subsidiaries to broadcast movies in theaters. The company's stock is currently trading at HK$42.20, with a target price of HK$40.00, representing a 5% downside. The current price-to-earnings (P/E) ratio is 40.4x for FY16E, which is 30% higher than the industry average of 30x. The company's market cap is HK$14,978 million, and it has an issue share of 355.36 million.

Key Financial Highlights

• Revenue Growth:

  • FY14A: 78.2 million USD
  • FY15A: 110.6 million USD
  • FY16E: 134.2 million USD
  • FY17E: 166.6 million USD
  • FY18E: 200.3 million USD
  • Growth rates: 39.8%, 41.4%, 21.3%, 24.2%, 20.3%

• Net Profit Growth:

  • FY14A: 22.8 million USD
  • FY15A: (181.9) million USD
  • FY16E: 45.3 million USD
  • FY17E: 59.1 million USD
  • FY18E: 74.1 million USD
  • Growth rates: 30.5%, (898.3)%, (124.9)%, 30.5%, 25.3%

• Adjusted Net Profit Growth:

  • FY14A: 26.0 million USD
  • FY15A: 43.4 million USD
  • FY16E: 47.8 million USD
  • FY17E: 61.8 million USD
  • FY18E: 76.9 million USD
  • Growth rates: 41.0%, 66.9%, 10.2%, 29.4%, 24.4%

• Adjusted Diluted EPS (HK$):

  • FY14A: 0.805
  • FY15A: 0.949
  • FY16E: 1.046
  • FY17E: 1.353
  • FY18E: 1.683
  • Growth rates: 12.2%, 18.0%, 10.2%, 29.4%, 24.4%

• ROE (%):

  • FY14A: 154.7
  • FY15A: (197.6)
  • FY16E: 22.2
  • FY17E: 21.1
  • FY18E: 21.4

• Adjusted P/E (x):

  • FY14A: 73.2
  • FY15A: 44.5
  • FY16E: 40.4
  • FY17E: 31.2
  • FY18E: 25.1

• P/B (x):

  • FY14A: 62.6
  • FY15A: 12.2
  • FY16E: 7.7
  • FY17E: 6.2
  • FY18E: 5.0

• Yield (%):

  • FY14A: 0.0
  • FY15A: 0.3
  • FY16E: 0.0
  • FY17E: 0.0
  • FY18E: 0.0

• DPS (HK$):

  • FY14A: 0.000
  • FY15A: 0.134
  • FY16E: 0.000
  • FY17E: 0.000
  • FY18E: 0.000

Main Points

• Earnings Revisions:

  • Earnings estimates for FY16E/17E/18E were revised up by 4.6%/4.6%/5.7% due to an increased installation target for new screens from 100 to 115.
  • Adjusted net profit is expected to grow by 10.2% for FY16E, 29.4% for FY17E, and 24.4% for FY18E.

• Revenue Growth Drivers:

  • Increased installation of new screens (115 in FY16E).
  • Stronger contracts signed in 1H16, including 79 new orders.
  • Expected 28% CAGR for screens' installations from 307 in FY15 to 647 in FY18E.

• Margin Improvements:

  • Higher margins from full revenue sharing arrangements in FY17E and FY18E.
  • Adjusted net profit margins are expected to increase from 39.4% in FY15 to 59.4% in FY16E and 65.5% in FY18E.

• Valuation and Rating:

  • Despite the positive outlook, the HOLD rating is maintained due to the rich valuation.
  • The current P/E ratio is 40.4x for FY16E, with a PEG of 1.9x, indicating a 30% premium over the industry average.

Key Risks

• Weaker than expected film slate and box office performance.
• Intensifying competition, including potential price wars.
• Substantial depreciation of the CNY.
• Termination of relationships with top customers.
• Exit of pre-IPO investors.

Financial Summary

• EBITDA:

  • FY14A: 35 million USD
  • FY15A: 47 million USD
  • FY16E: 64 million USD
  • FY17E: 83 million USD
  • FY18E: 104 million USD

• EBITDA Margin:

  • FY14A: 44.8%
  • FY15A: 42.6%
  • FY16E: 47.5%
  • FY17E: 49.8%
  • FY18E: 52.0%

• Net Cash Flow:

  • FY14A: 28 million USD
  • FY15A: (0) million USD
  • FY16E: 53 million USD
  • FY17E: 63 million USD
  • FY18E: 80 million USD

• Balance Sheet Highlights:

  • Fixed assets are expected to grow from 43 million USD in FY15 to 91 million USD in FY18E.
  • Shareholder's equity is projected to increase from 26 million USD in FY15 to 384 million USD in FY18E.
  • BVPS (Book Value Per Share) is expected to rise from HK$3.45 in FY15 to HK$8.40 in FY18E.

Conclusion

IMAX China has seen an increase in its installation targets and revenue growth, which has positively impacted its earnings forecast. However, the company's valuation remains high, leading to the maintenance of a HOLD rating. The financial performance is expected to improve with higher margins and better operational efficiency, but the company faces several risks, including market competition and currency depreciation. The financial metrics indicate a strong EBITDA and increasing net cash flow, which could support future growth.