Summary of the Global Movie and Cinema Report (February 2017)
Core Content
This report by Macquarie Capital provides an analysis of the global movie and cinema industry, focusing on structural trends, valuation metrics, and investment recommendations. It highlights the growing importance of China in the global box office, the shift towards premium movie experiences, the increasing influence of internet companies, and the trend of industry consolidation.
Main Points
1. Global Box Office Trends
- China's Growth: China's box office revenue share increased to 18% globally in 2016, with growth expected to accelerate to 13% YoY in 2017, surpassing the US in 2021.
- US Box Office: The US box office grew by 2.2% in 2016 to $11.4bn, with a slower growth rate compared to China.
- Capacity Expansion: Theaters continue to expand globally, but box office growth is slowing. China's theater count surpassed the US in 2016, with 41k vs 40k screens.
- Revenue per Screen: Capacity expansion has led to a decline in revenue per screen, from $190k in 2013 to $166k in 2016, but is expected to improve in 2017.
2. Premium Experience and Concessions
- Premium Large Format (PLF): PLF screens account for only 1% of global screens but grow at a faster rate (26% vs 8% in 2015). IMAX holds over 53% of the PLF market share.
- Concessions Revenue: Leading cinema operators generate ~30% of their revenue from concessions, which have higher gross margins (40% vs 15% from ticketing).
- Cinemark Example: Cinemark has consistently grown concessions per person for 39 consecutive quarters in the US.
3. Industry Power Shift
- Downstream Consolidation: Cinema operators are gaining more power in content selection and box office outcomes.
- Market Concentration: The US film industry is highly concentrated with the top-four studios holding over 70% of the market, while in China, the top-four hold only ~10%.
- Emerging Asia Producers: Asia producers are gaining prominence due to the popularity of orient-themed movies and co-production models.
4. Internet Disruptors
- TAB Expansion: Tencent, Alibaba, and Baidu (TAB) are expanding from ticket distribution to content production.
- Digital Growth: US studios have seen digital revenue grow from 12% in 2010 to 49% in 2016, with higher margins.
- Amazon's Potential: Amazon is a potential disruptor in the US, but is not seen as a major threat to the industry's profitability.
5. Valuation and Investment Recommendations
- Valuation Metrics: Emerging market movie stocks trade at over a 30% premium to developed markets on EV/EBITDA and P/E multiples.
- Top Picks: The report recommends several companies across the global value chain, including Wanda Cinema, AMC, IMAX, Alibaba, and Disney.
- Consolidation Outlook: The report anticipates accelerated consolidation in the Chinese cinema industry over the next few years.
Key Companies and Recommendations
China
| Company |
Ticker |
Recommendation |
Price (LC) |
Target Price |
Upside (%) |
| Alibaba |
BABA US |
OP |
102.07 |
123 |
21% |
| IMAX China |
1970 HK |
OP |
36.10 |
42 |
16% |
| Wanda Cinema |
002739 CH |
OP |
57.98 |
74 |
28% |
| Tencent |
700 HK |
OP |
204.40 |
240 |
17% |
| Leshi |
300104 CH |
OP |
36.60 |
50 |
37% |
US
| Company |
Ticker |
Recommendation |
Price (LC) |
Target Price |
Upside (%) |
| IMAX Corp |
IMAX US |
OP |
33.05 |
43 |
30% |
| AMC Entertainment |
AMC US |
OP |
34.00 |
40 |
18% |
| Disney |
DIS US |
OP |
109.30 |
125 |
14% |
| Regal Entertainment |
RGC US |
OP |
22.87 |
25 |
9% |
Korea
| Company |
Ticker |
Recommendation |
Price (LC) |
Target Price |
Upside (%) |
| CJ CGV |
079160 KS |
OP |
76700 |
100000 |
28% |
India
| Company |
Ticker |
Recommendation |
Price (LC) |
Target Price |
Upside (%) |
| Eros International |
EROS US |
OP |
12.00 |
20 |
67% |
Thailand
| Company |
Ticker |
Recommendation |
Price (LC) |
Target Price |
Upside (%) |
| Major Cineplex |
MAJOR BKK |
OP |
31.75 |
35 |
10% |
Conclusion
The report emphasizes the structural changes in the global movie and cinema industry, with a focus on China's growing market share and the role of premium formats and concessions. It also highlights the increasing influence of internet companies and the potential for consolidation. Based on valuation and growth expectations, the report recommends several companies as top picks for investment.
