News Corporation (NWS) helped Bona Film Group (BONA) shareholders see a fifty two week high after disclosing a stake in the Chinese filmmaker. News Corporation will own 19.9% of the company after the deal is complete. Chief Executive Officer Dong Yu, who owned 35% when the company went public, will remain a large shareholder with 27% ownership. Shares of Bona Film traded up almost eight percent after the News Corporation announcement was made.
Bona Film Group operates as a film producer, film distributor, movie theater operator, and also owns a talent agency. The company is diversified within the entertainment industry and offers great opportunities to capture China's growing film market.
Flying Swords of Dragon Gate was one of the highlights for Bona Film Group. The movie has made over $86.5 million in China. Back in December, I highlighted the movie as a bright spot for Imax (IMAX). The movie was the first original movie to be featured in Chinese language on IMAX screens. At the time of the article, the movie had made $2.5 million on 59 IMAX screens. The movie, which is the highest grossing Chinese film of all time, will come to North America in September. The film will play on a select number of IMAX screens. At the time of writing, the movie has made $10.6 million on IMAX screens, and is the fourth highest IMAX DVR film in China (behind Avatar, Transformers: Dark of the Moon, and Titanic 3D).
During the company's first quarter earnings, they announced increased revenue and net income. For the quarter, net revenue was $43.7 million, an increase of 127% from last year's first quarter. Gross profit for the quarter was $20.8 million, which was an increase of 122%. Net income came in at $2.3 million for the quarter, a slight increase of the $2.2 million figure put up last year. Earnings per share were $0.04 for the first quarter.
Bona Film Group also opened their thirteenth movie theater in the first quarter. The new theater brings the screen count over 100 for the company. At the time of the IPO, the company owned six movie theaters. The company has forecasted to have thirty to forty theaters by 2014.
The company releases 16-20 films a year with a mix of locally produced movies and imported American movies. Along with the Bona Films ownership, the company owns 20% of China Lion, another Chinese film distributor. One of the company's current movies Double Trouble, stars Jackie Chan's son. In 2011, Bona Films distributed 15 movies and captured a 16.5% market share in China. Along with the Chinese movies, the company also acquired the rights to Source Code, an American movie starring Jake Gyllenhaal. Several movies will be released in 3D in 2012 including Tracks in the Snowy Forest and The White-Hair Witch. Bona Films also continues to capitalize on its library by securing television rights with companies like Sina, Youku, and Sohu. Bona Films will also expand into television with its "The King's Battles" series premiering in December 2012.
Bona Films continues to dominate the local film awards in China. Bona's A Simple Life was named Best Picture at the Hong Kong Film Awards. The win gives Bona three straight wins in the prestigious category. A Simple Life and Flying Swords of Dragon Gate led the way with ten and thirteen nominations respectively.
Two recent new pieces could show the major benefits of the Chinese movie markets. In February, restrictions were loosened on the number of films allowed to be imported into China each year. The new number of imports is 34, up from a previous 20. Bona Films, as a distributor who is looking to import films could benefit on a large scale from this new restriction. The company is looking at opening a Beverly Hills office to take advantage and form partnerships with American studios. News Corporation was one of the rumored partners, and the new equity stake will likely see a large number of News Corp movies enter China through Bona Films Group.
Another potential positive for Bona Films Group and the Chinese movie market in general is a rumored buyout of AMC Movie Theaters. Wanda Group, a Chinese movie theater, is in talks to buy America's second largest movie theater chain. AMC is currently majority owned by Apollo Group and JP Morgan (JPM), who both own 39% of the company. The deal would give Wanda a large presence in China and the United States, two of the largest movie markets in the world. In China, Wanda has 86 theaters representing 730 screens in the most populous nation. The company's goal in China is 2000 screens by 2015. Wanda is also a large IMAX customer, with 47 IMAX theaters representing over half of its movie theater total. The deal for AMC's 5050 screens would likely see a large number of Chinese movies enter the United States. Bona Film Group would be a big beneficiary as it distributes some of the largest Chinese movies each year.
The company sees second quarter net income of $1.5 to $1.7 million. For the full fiscal 2012, Bona Films is guiding for $22 million in net income. Analysts on Yahoo Finance are calling for $0.31 in earnings per share in 2012. The following year, analysts see earnings per share of $0.51. At today's share price of $6.20, that represents a forward price to earnings ratio of 12.
Bona Films went public in December of 2010 at $8.50 a share. Shares never reached that price on the open market as they fell their first day of trading. Shares of Bona Film Group sell for $6.20, down from Monday's new fifty two week high of $6.50. Bona Films looks like a value compared to its all time high of $7.50. The new deal with News Corporation could see immediate benefits for Bona Films in 2012. Look for an increase in the share price throughout the year.
Disclosure: I am long IMAX.