• GSC (Golden Screen Cinemas) has announced the permanent closure of GSC Cheras Leisure Mall and GSC Berjaya Times Square due to operating restrictions resulting from Covid-19.
• We think that there may be some impairment charges in FY20E due to the closure of the cinema operations at the two locations.
• Although we do not know the impairment amount, we reckon that it would not be significant to PPB’s bottom line. More than 80% of PPB’s net profit comes from 18.4%-owned Wilmar International. PPB’s share of net profit in associates (including Wilmar) was RM1.0bil in FY19.
• Operationally, we believe that the two locations do not contribute major earnings to the cinema division. We think that some of PPB’s more profitable cinema units are those located at Mid Valley/The Gardens and IOI Putrajaya.
• In total, PPB has 361 cinema screens at 37 locations (before the closure of GSC Cheras Leisure Mall and GSC Berjaya Times Square). The group’s market share of domestic box office collections was 40% in FY19.
• For FY20E, we forecast a pre-tax loss of RM94.5mil for PPB’s film exhibition and distribution unit. The cinema industry in Malaysia was not allowed to operate for almost six months in year 2020. The division recorded pre-tax profits of RM54.0mil to RM66mil per year from FY15 to FY19.
• Currently, we forecast a pre-tax profit of RM44.5mil for the film exhibition and distribution unit in FY21F. However, if cinemas remained close due to the Covid-19 pandemic, we may revise our earnings estimates downwards.
• We maintain HOLD on PPB Group with a fair value of RM20.30/share.

Source: AmInvest Research - 8 Jan 2021