IMAX China Expansion Should Power Shares To New Highs

| About: IMAX Corporation (IMAX)

Late Wednesday night, Imax Theatres (NYSE:IMAX) announced a new deal with Wanda Theatres. The new deal significantly boosts Imax's presence in China and takes it closer to its original theatre count goal in the most populous nation in the world.

Imax signed a new amendment to its 2011 contract. The new deal calls for a minimum of 40 Imax theatres to be opened in China. The deal does call for up to 120 theatres, which would be a huge boost for the company. The deal also extends current lease obligations to 12 years, boosting the current 10-year program. The deal makes Wanda the largest international partner with Imax. The company now has commitments for 210 Imax theatres in China.

Along with the deal in China, Wanda boosted its partnership with Imax through its newly acquired AMC Theatres. Purchased in 2012, AMC gave Wanda huge exposure to the United States movie theatre business. AMC announced their leases will be boosted to 13 years from a current agreement of 10 years. Also, the Wanda subsidiary will open a minimum of five Imax theatres in the United States, with possible agreements coming for ten theatres. AMC has a total commitment of 152 Imax theatres in the United States open or in the backlog, making it the largest United States partner for Imax.

More importantly, the deal has ramifications for Imax's minimally covered next-generation laser projection system. The company's new technology will be a key growth driver, as Imax attempts to get it into new and existing theatres. Under the new agreement with Wanda in China, up to 80 of the potential 120 new theatres will have the new laser projection system. The deal also includes the rights to transition existing China Imax's under the Wanda name to the new laser technology.

Wanda has been a partner with Imax since 2007 and was one of the company's first international theatre partners. The company has helped Imax get a strong foothold in China. With the new announcement, Imax now has 381 theatres open or in the backlog for China. In an article, I highlighted Imax's five year plan and theatre goal counts. The company believes it can someday have 1700 theatres around the world, with 400 represented in China. With the new Wanda deal, I believe that 400 number will prove too minimal and will be boosted to a higher number during an earnings call. At the end of March, Imax had 738 Imax Theatres (606 commercial) open.

Imax has also seen its relationship in China increase. In February, the company released "Journey to the West: Conquering the Demons" on Imax screens exclusively in China. The motion picture represented a way for Imax to take advantage of the growing domestic box office business in between the releases of key American films on the giant screens. Similarly in July, Imax theaters showed "Man of Tai Chi," a new film from American actor Keanu Reeves.

In the first half of 2013, the Chinese box office grew 36% to $1.79 billion. The country is on track to pass the United States within the next ten years, after recently passing Japan for the number two position. I highlighted Imax as one of the companies who is benefitting the most from this growth. The company will win with strong domestic and international movies in China on its big screens.

Earlier in July, Imax also signed a new theatre deal with Pathe. The deal will bring the first Imax theatre to Switzerland and extends Pathe's total Imax count to 12 theatres. Pathe is the largest movie theatre company in France, Switzerland, and the Netherlands, with 104 theatres and 983 screens. The deal is another example of how Imax has boosted its relationships and continues to see strong international expansion with current partners.

Shares of Imax closed Wednesday at $25.10. My guess is shares see strong trading Thursday based off of this deal. Over the last fifty two weeks, shares have traded between $18.89 and $28.99. Analysts are forecasting Imax to post earnings per share of $0.85 in the current fiscal year. Revenue is expected to grow only 3.4% on the fiscal year. In 2014, analysts see revenue growing 18.9% and earnings per share to increase to $1.23.

The company trades with a high valuation on this year's expected earnings per share. However, with a strong backlog and new technology, I believe shares of Imax can go higher. I expect shares to hit $30 by the end of 2013. I have been a shareholder in the company for years, and continue to believe in the long-term "picture" of the company.

Disclosure: I am long IMAX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Tagged: , , , Photographic Equipment & Supplies, Canada
Problem with this article? Please tell us. Disagree with this article? .