CINEMA
Across The Border
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Wanda Cinema Line and IMAX China tipped to benefit from mainland China box office boom

Mainland cinemas’ box office receipts rose almost 50 per cent last year to a record US$6.7 billion

PUBLISHED : Sunday, 13 March, 2016, 10:01am
UPDATED : Sunday, 13 March, 2016, 10:00am

Cinema box office takings in mainland China are still booming despite a wider economic slowdown as residents of smaller cities develop the movie-watching habit, boosting the prospects of cinema operators.

Monthly ticket sales on the mainland surpassed those in the United States for the first time last month, reaching US$1.05 billion, compared with US$810 million, the official Xinhua news agency reported this month, citing figures from the State Administration of Press, Publication, Radio, Film and Television.

Mainland cinemas’ box office receipts rose almost 50 per cent last year to a record US$6.7 billion.

While February’s box office was boosted by the week-long Lunar New Year holiday and domestic blockbuster The Mermaid, analysts say they expect the strong growth will continue this year, especially in smaller cities.

“The box office share by city tiers has moved from tier-one cities towards tier-two, -three and -four cities,” Credit Suisse analysts said in a report last month. “This is mainly due to cinema growth in lower-tier cities outpacing tier-one cities, and audiences in lower-tier cities gradually forming movie-watching habits as disposable income increases.”

Wanda has started off 2016 with faster-than-expected expansion
Credit Suisse analysts

Due to increases in cinema and screen numbers, third- and fourth- tier cities contributed more than half of the mainland box office during the Lunar New Year season for the first time this year, mainland entertainment data provider Entgroup said.

Wanda Cinema Line, the mainland’s largest cinema chain operator, is a subsidiary of property and entertainment conglomerate Wanda Group, which is controlled by China’s richest man, Wang Jianlin.

Wanda said in the first two months this year it generated box office revenue of 1.58 billion yuan, up 70 per cent year on year.

“Wanda has started off 2016 with faster-than-expected expansion, with 21 new builds and acquisitions in January, versus nine in first half of 2015,” the Credit Suisse analysts said.

They said Shenzhen-listed Wanda Cinema would be the biggest beneficiary from the continuous box office growth on the mainland, forecasting that aggressive expansion would see it reach a total 390 theatres with 3,490 screens, up from 300 cinemas and 2,617 screens at the end of February.

Wanda took a 14 per cent share of last year’s mainland box office with sales of 6.3 billion yuan, helped by mega hits such as the adventure film The Ghouls and the comedy Goodbye Mr Loser.

Trading in its shares has been suspended pending a major acquisition. On Wednesday it said it would acquire movie- and television-related assets from Wanda Group.

Market watchers expect Wanda Cinema will gain an injection of assets from Wanda Pictures, which comprises Wanda’s movie-production business and US production company Legendary Entertainment, acquired by the Chinese conglomerate in January for US$3.5 billion.

Deutsche Bank said the acquisition would either see Wanda Cinema buy shares from Wanda Pictures before its initial public offering, or all the upstream assets of Wanda Pictures would be injected into Wanda Cinema, with Wanda Pictures putting off the IPO.

“We foresee an emerging movie kingdom,” Deutsche Bank analysts said in a report Tuesday.

Deutsche Bank gave Wanda a “buy” rating, while Credit Suisse maintained an “outperform” rating.

At the current rate of growth, market watchers expect China will surpass North America as the world’s largest film market early next year.

Investment banks also recommend Hong Kong-listed IMAX China to investors looking to ride the mainland film market boom.

The company recently posted a US$181 million loss for last year, but analysts said it had a brighter outlook, as the loss was due to one-time valuation losses and its revenue and core profit were much better than expected. IMAX China generated a record US$312 million in box office takings last year, up 54 per cent year on year.

“We like IMAX China’s asset-light business model, niche technology and leverage to Chinese box office growth,” Bank of America Merrill Lynch analysts wrote in a report late last month. “IMAX China can ride on the Chinese box office for the next 10 years with minimal capital investment.”

The cinematic-technology provider has a very low penetration rate in mainland China compared with other countries, with only 278 commercial IMAX theatres on the mainland.

The company says it plans to open about 100 new theatres this year, ahead of market expectations, as its expansion speeds up.

“The unoccupied IMAX zones present opportunities for the IMAX network to grow significantly in coming years,” CICC analysts said, adding that as the economy softened people would people would cut back of expensive leisure activities such as travel and go to the movies instead.

However, Deutsche Bank analysts expressed concerns about IMAX China’s business model, with a high number of IMAX systems sold outright rather than being subject to revenue sharing, which means IMAX will miss out on some of the benefits of box office growth.