Slow April Won’t Keep Cinemark Down

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

Cinemark’s (NYSE:CNK) Q1 was largely in line with our estimates and consensus. Total revenue was $548 million, vs. our estimate of $541 million, and consensus of $550 million. Adjusted EBITDA was $116 million vs. our estimate of $112 million, and consensus of $116 million. EPS was $0.28 vs. our estimate of $0.26, and consensus of $0.24.

Domestic revenue beat expectations on solid concession and other revenue. Admissions revenue per average screen in the domestic segment decreased 12.6 percent vs. our estimate of down 12.4 percent (in-line with the industry), due to a decline in attendance per average screen of 13.5 percent and a 1 percent increase in average ticket. Concessions per cap increased 3 percent, and other revenue per cap increased 14 percent.

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International revenue beat expectations on very high concession revenue. International revenue increased 9 percent, vs. our expectation for a 7 percent increase in U.S. dollars. Admission revenue increased 7 percent, in line with our estimate, based on flat attendance per average screen, and average ticket up 3 percent. Concessions per cap increased 8 percent, and other revenue per cap was flat.

Operating expenses were higher than expected, driven by international payroll and D&A. Film rental costs were slightly lower, while concessions costs and lease expenses were in line with our estimates. Other operating expenses were 100 bps above our estimate, driven by an increase in international payroll expense. D&A expense was also above our expectations during the quarter.

We expect Q2 box office up 5 percent domestically and up 12 percent internationally despite a slow April. Q2 domestic box office is trending down 7.5 percent after April ended down 12.2 percent, and we estimate that Q2 Latin American box office is trending down 2 percent at the end of April. May and June include several blockbuster releases, which we expect to drive the improvement, both domestically and internationally.

Our FY:13 estimate for revenue goes to $2.61 billion from $2.60 billion, and for EPS to $1.81 from $1.78, while we maintain our estimate for adjusted EBITDA of $593 million, reflecting Q1 results. We maintain our FY:14 estimates for revenue of $2.80 billion, adjusted EBITDA of $643 million, and EPS of $2.00.

Maintaining our NEUTRAL rating and $29 price target. After accounting for Cinemark’s ownership stake in National CineMedia (NASDAQ:NCMI), we arrive at a $29 price target, which reflects a 6.5x EV/EBITDA multiple on 2014 estimates, slightly above its historical multiple and peers. We maintain Cinemark’s multiple to reflect its growth opportunities domestically and internationally, balanced with increasing net debt and our caution given its dependence on economic growth in Latin America.

Michael Pachter is an analyst at Wedbush Securities.

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