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The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Cinemark Holdings (NYSE:CNK) will report Q3:12 results before the market open on Tuesday, November 6, and will host a conference call at 5:30am PT (dial-in: 800-374-1346, webcast: Investor Relations section of www.cinemark.com).
We expect Q3:12 results in line with our estimates for revenue of $630 million and EPS of $0.35, compared with consensus for revenue of $627 million and EPS of $0.35. There was no forward guidance.
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We expect growth in domestic revenue per average screen in line with the industry of down 6.9%. Late June releases performed above expectations, but July releases mostly disappointed. The Dark Knight Rises was the standout summer blockbuster, as expected, but was negatively impacted by the Colorado incident. August was plagued by cannibalization from the Olympics and a generally weak box office, while September releases were uncompelling.
We estimate that Latin American box office trended down in Q3 in U.S. dollars, while trending up in local currency. According to boxofficemojo.com and our calculations, Brazil was down 18% in dollars, but up 3% in local currency, while Mexico was down 9% and flat, Argentina was up 27% and up 39%, Colombia was up 2% and up 3%, and Peru was down 4% and down 9%, respectively. After weighting each market, we estimate that Cinemark’s combined Latin American markets were up ≈ 2% in local currency after accounting for the additional theaters Cinemark acquired in the region in the last year.
We expect higher film rental costs in Q3 given a higher concentration of box office receipts within the top ten films. We are modeling film rental costs of 55.2% in Q3, 115bps above the year ago level.
Q4 quarter-to-date box office is tracking up over 20%, with all major Q4 blockbusters still upcoming. The Q4:11 release slate was crowded with singlegenre weekends, and overall box office receipts suffered as a result. We do not view this as a risk to Q4:12 given a variety of blockbusters within all genres as well as more favorable timing of the release slate compared to last year. As a result, we view our Q4 box office estimate of up 6.2% as conservative.
Maintaining our NEUTRAL rating and $24 price target. After accounting for Cinemark’s ownership stake in National CineMedia, we arrive at a $24 price target, which reflects a 6.1x EV/EBITDA multiple on 2013 estimates. Cinemark’s multiple reflects its growing international footprint and lower debt ratios, while maintaining our caution given its dependence on economic growth in Latin America.
Michael Pachter is an analyst at Wedbush Securities.
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