1H23 Non-IFRS 's net profit is slightly lower than we expected.
The company announced 1H23 results: revenue of US $45.34 million, an increase of 38.6% compared with the same period last year, and a substantial increase in net profit of US $15.09 million. Non-IFRS net profit was slightly lower than we expected, mainly because the film market was still in a period of recovery, and the company had a small number of newly installed cinema systems, resulting in low revenue expectations.
Trend of development
The box office rebounded with the overall market, and the market share increased. In terms of box office, IMAX Greater China 1H23 grossed US $165 million, up 116%, with a market share of 4.6%, up 0.8 ppt over 2022; single-screen box office increased by 120%; of this total, 2Q23 IMAX Greater China grossed US $67.3 million, up 155%, and continued to pick up with the market. In terms of system installation, 1H23 installed 10 new cinema systems, of which 6 were split / sold, and 2 new cinema systems were added net.
As of 1H23, the screen covers 795 cinemas. We believe that as the summer season accelerates the recovery of the film market, the number of new installations is expected to increase month-on-month in the second half of the year. On the profit side, 1H23's gross profit margin increased to 63.3%, while the rate of sales and management expenses decreased by 9.4%, 2.6ppt decreased by 33.3%, compared with 2019, and was close to the normal level before the epidemic.
The summer key films cover a wide range of films and pay attention to the introduction of imported films. Recently released and scheduled IMAX standard films include domestic films "Octagonal Cage", "Changan 30,000 miles", "Divine first", "enthusiastic" and "desperate", as well as imported films "Mission impossible 7", "Giant Tooth Shark 2: the Abyss" and "Oppenheimer".
We believe that the company has a high coverage of the key content in the summer, which is expected to boost the box office and performance. In addition, follow-up films to be released on the IMAX global network in 2023 include "friend 3", "Sand Dune 2" and "Sea King 2". We believe that the introduction of imported films may continue to be positive in the second half of the year, while the company's coverage of key domestic films continues to improve, which is expected to boost the market share.
Follow the progress of IMAX China privatization and delisting. The company announced on July 13 that IMAX, the company's controlling shareholder and offeror, proposed to privatize IMAX China by agreement at an offer price of HK $10 per share, a premium of 39.5% and 49.2% over the closing price of the previous full trading day and the first 30 complete trading days, and the total transaction volume of the company is expected to be US $124 million. As of the date of announcement, the offeror held 71.63% of the shares in the company through its wholly-owned subsidiary IMAX Barbados. IMAX said at the public exchange meeting that IMAX China's liquidity and attention in the Hong Kong stock market are relatively general, undervaluation, privatization may bring benefits in many ways: 1) from the financial point of view, it will increase profits for IMAX, save listing expenses (about US $2 million / year), improve tax planning and cash use flexibility; 2) from the perspective of organizational structure, simplify the company structure and reduce the complexity of financial reporting and valuation 3) from an operational point of view, enhance strategic coordination and flexibly promote growth strategies in the Chinese market, such as the introduction of streaming media and home entertainment technology.
Profit forecast and valuation
Maintain profit forecasts. Maintain an outperform industry rating and target price of HK $10.2, which corresponds to 9 times 2023 Non-IFRS Pamp E in 2024, with 7.3 per cent upside compared to the current share price. The current share price trades at 10.3 Universe 8.4 times 2023 Non-IFRS Placer E 2024.
Risk
The film was released and the number of system installations was lower than expected, and the progress of the privatization deal was not as expected.