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Summary

  • Cinemark is the 3rd largest movie theater operator in the US.
  • Domestic box office revenue declined by 1.4% during the first 6 months of 2014.
  • Cinemark revenue growth has outperformed Regal Entertainment and AMC Entertainment by wide margins in 2Q14.

Cinemark Holdings (NYSE:CNK) is one of the largest movie theater operators with 488 theaters and 5,609 screens in the US and Latin America. As of June 30, 2014, it was the 3rd largest operator in the US with 332 theaters in 40 states and ranked #1 or #2 in box office revenues in 23 of their top 30 US markets. Cinemark is also the most geographically diverse operator in Latin America with 156 theaters in 13 countries, with a presence in 14 of the top 15 metropolitan areas in South America.

Three months ended June 30,

($ Millions)

2014

2013

Y/Y % change

-Admissions

$ 445.7

$ 464.5

-4.0%

-Concessions

$ 226.4

$ 228.7

-1.0%

-Other

$ 35.7

$ 32.4

10.2%

Total Revenue

$ 717.8

$ 725.6

-1.1%

Operating Income

$ 116.8

$ 134.0

-12.8%

Net Income

$ 72.1

$ 20.8

246.6%

EPS

$ 0.62

$ 0.18

244.4%

Adjusted EBITDA

$ 169.4

$ 178.0

-4.8%

Source: Cinemark Earning Release

Cinemark faced a tough quarter with the 2Q14 domestic box office declining 6.6% to $2.8 billion, down from $3.0 billion. 2Q13 was the first time the domestic box office broke $3.0 billion, so the industry was facing an incredibly tough comparison. Despite weak box office numbers in 2Q14, Cinemark's world-wide admission revenues outperformed the North American industry by 460 basis points. This is Cinemark's 21st out of 22 consecutive quarters of outperformance on a currency adjusted basis. Cinemark's revenue in the US market was $334 million, essentially flat to the prior year quarter and admission only slipped 1%. Domestic average ticket price increased slightly to $7.20, up from $7.16.

With Cinemark being heavily weighted toward Latin America, the World Cup in Brazil was another issue facing the company during the second quarter. With the tremendous popularity of soccer in South America, it was unclear how this might affect the company's international operations. Cinemark was actually able to capitalize on the World Cup by displaying select World Cup games in 56 theaters in 10 Latin America countries. By creating these unique live viewing opportunities, the second quarter box office actually performed stronger in Brazil than was anticipated.

Six months ended June 30,

($ Millions)

2014

2013

Y/Y % change

-Admissions

$ 836.6

$ 813.9

2.8%

-Concessions

$ 419.4

$ 401.1

4.6%

-Other

$ 64.0

$ 58.4

9.6%

Total Revenue

$ 1,320.1

$ 1,273.4

3.7%

Operating Income

$ 184.7

$ 199.6

-7.5%

Net Income

$ 107.8

$ 53.9

100.0%

EPS

$ 0.93

$ 0.46

102.2%

Adjusted EBITDA

$ 297.9

$ 294.2

1.3%

Source: Cinemark Earnings Release

Peer Comparison

(click to enlarge)

Market Cap ($B)

P/E

Fwd. P/E

Dividend Yield

6 mo. Revenue Growth

Cinemark

$ 4.1

20.4

19

2.8%

3.7%

Regal Ent. Group (NYSE:RGC)

$ 3.3

25.5

17.8

4.2%

0.8%

AMC Ent. Holdings (NYSE:AMC)

$ 2.2

5.3x

26.1

3.5%

0.7%

Cinemark has enjoyed a nice run-up over the past 3 months and is up more than 10% compared to peers, Regal Entertainment and AMC Entertainment. As a result of Cinemark's price appreciation, its dividend fell from around 3.5% to 2.8%. However, Cinemark is far outpacing its peers in revenue growth during 2014. For the three months ending June 30, 2014, Cinemark's revenue declined 1.1% versus Regal's revenue decline of 8.5% and AMC's revenue decline of 4.7%. For the six months ending June 30, 2014, Cinemark's revenues grew 3.7% compared to 0.81% for Regal and 0.66% for AMC Entertainment. This revenue growth is even more impressive when the domestic box office revenues are factored into this timeframe. Through June 30, 2014, domestic box office revenue fell 1.4% to $5,224 million, down from $5,297 million in 2013. Cinemark's international growth in Latin America and strong performance domestically has helped the company outperform its peers. Cinemark's revenue growth beat Regal by nearly 290 basis points and AMC by over 300 basis points through the first half of 2014.

Future Growth

With Transformers: Age of Extinction, Dawn of the Planet of the Apes, Guardians of the Galaxy and Ninja Turtles launching thus far in 3Q14 and strong releases through the end of 2014, the back half of 2014 looks make up for a weak first half. 2015 looks to be an even stronger year for the domestic box office with The Avengers, The Minions, Bond 24, Star Wars: Episode VII and the final Hunger Games movie all being released. Added visibility into future movie releases makes Cinemark a strong buy. The movie operator has shown it can outperform competitors during industry weakness, giving it added downside protection. As the domestic and world-wide box office starts picking up during the back half of 2014 and into 2015 and 2016, Cinemark should continue its revenue growth with its domestic and international strength. In addition, the company has committed to opening 9 new theaters with 96 screens by the end of 2014 and 14 new theaters with 134 screens after 2014.

Conclusion

Cinemark has performed remarkably well during industry weakness and as a result has appreciated roughly 10% over the past 2 weeks to near its 52 week high of $35.96. At around $36/share, I recommend waiting for a pull back in price. I'm generally not a fan of buying stocks at 52 week highs and Cinemark is no exception. Long-term, I see Cinemark reaching over $40 a share by next summer. Investors should view any market weakness as an opportunity to buy. At around $33/share the stock has a yield over 3% and marks a decent entry point.

Source: Cinemark Holdings: Strongest Revenue Growth In Its Industry