• The Edge CEO Morning Brief reported that PPB Group’s Golden Screen Cinemas (GSC) is acquiring the majority of cinema assets from the operators of the MBO chain of cinemas, which is currently going through a creditors’ voluntary winding up.

• GSC said that it signed an asset sale agreement on 23 February 2021 to acquire the assets from MCAT Box Office Sdn Bhd and Reel Entertainment Holdings Sdn Bhd, which are under creditors’ voluntary winding up.

• This development comes after GSC closed GSC Berjaya Times Square and GSC Cheras Leisure Mall in January 2021 due to Covid-19.

• The deal is expected to be completed by June 2021. MBO owns 27 cineplexes in 10 states. There are no details on the size and value of the acquisition of MBO cinemas. We believe that it costs about RM1.5mil to RM2.0mil to set up a cinema screen. MBO is owned by private equity company Navis Capital.

• We are neutral on this development. The acquisition of MBO may widen the losses at PPB’s film exhibition and distribution unit if the shutdown of cinemas continues in the next few months.

• Currently, we forecast the film exhibition and distribution division’s pre-tax losses todecline to RM55.0mil in FY21F from RM122.5mil in FY20.

• On a positive note, PPB’s market share in the cinema industry in Malaysia would become larger when the cinema industry recovers. MBO’s cinemas are located mainly in the smaller neighbourhood malls such as The Starling and Atria Shopping Gallery, both in Petaling Jaya, Selangor.

• PPB’s market share of the domestic box office collections was 40% in FY19. In total, PPB has 361 screens at 37 locations before the closures of GSC Cheras Leisure Mall and GSC Berjaya Times Square.

• We maintain HOLD on PPB Group with a higher fair value of RM21.05/share vs. MR20.45/share previously. We have applied a 3% premium to our original value of RM20.45/share to reflect PPB’s four-star ESG ratings.

Source: AmInvest Research - 3 Mar 2021