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Cinemark Holdings Inc CNK.N - Fundamental Investment Case

Research

Publication Date: 18 Jun 2019 - By Robert Prather By Robert Prather
Actionable
Differentiated

Equity Fundamental Equity USA Consumer

Cinemark Holdings, Inc. operates movie theaters. The Company operates in the United States and Latin America.  Cinemark is the third largest movie theater operator behind Regal and AMC Theaters.  The third-largest movie exhibitor in the US has more than 6,051 screens in about 547 theaters in the US and Latin America. Cinemark operates its multiplex theaters in smaller cities and suburban areas of major metropolitan markets. The company prefers to build new theaters in midsized markets or in suburbs of major cities.  Cinemark breaks down revenue into admissions (~55% of revenues), concessions (~35% of revenues), and other (10% of revenues). Other revenues consist mostly of advertising revenue from ads played on their screens and special events.

Please download the full report for details on the Bear Case outlined below.

Qualitative Concerns:

  • After 2018 box office revenues were boosted by MoviePass, an unusually strong movie line up in 2019 could be the industry peak with revenue falling afterward.
  • Disney's purchase of Fox gives the company dominate market share and the ability to further pressure movie rental costs.
  • Pressure from Netflix and Disney could cause the viewing window for movies to be negotiated lower.
  • Disney, and other movie producers, will start to push upcoming titles to their OTT products (Disney+) in order to gain long term subscription revenue. 
  • The cinema industry, formally an oligopoly, has seen one competitor (AMC Theaters) push aggressively into the subscription business offering big discounts on both tickets and concessions.

Fundamental Concerns:

  • Attendance remains weak despite a benefit from MoviePass in 2018.
  • Ticket price growth has weakened after luxury seats have become more saturated.
  • Long term EBIT margins appear under pressure.
  • Estimates do not reflect the MoviePass and 2019 movie slate benefits in 2020.
  • Valuation full despite major industry changes.

Bottom Line: Cinema operator facing numerous industry changes and headwinds with possible peak box office revenues coming in 2019.

Cinemark

Source: VR Fundamental

Pages: 56

Released: 18 Jun 2019

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The Author

Robert Prather

Equity Analyst

Technology, Consumer, Industrials, Telecom & Media

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London, United Kingdom

info@reachx.co
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