D-Box deal with Cinemark is a “game changer” says Industrial Alliance

D-Box seats are installed at the Mall of America in Bloomington, Minnesota.On Thursday, D-Box Entertainment (TSXV:DBO) announced it had entered into an agreement with Cinemark Peru to install two D-Box-equipped auditoriums. The deal is D-Box’s first with Cinemark.

Cinemark International president Valmir Fernandes hinted that the deal might be the first of many.

“Cinemark is excited to be the first theatre circuit to introduce D-Box in Latin America,” he said. “We plan to expand D-Box to other locations based on the performance,”

Industrial Alliance Securities analyst Steve Li says this contract has far-reaching positive implications for D-Box. He says he fully expects additional orders from Cinemark because D-Box has proven its value proposition “time and time again”. The Industrial Alliance Securities analyst notes that D-Box’s MFX seats, which are sold upfront and generate royalty fees based on their use, generate higher occupancy rates for theatres. In an update to clients Thursday, Li reiterated his 12-month target price of $1.00 and our Speculative Buy rating.

Longueuil, Quebec based D-Box was founded in 1992, and the two-decades since have seen the company perfect its seat technology. D-Box’s MFX systems use motion effects specifically programmed for a particular film, TV series or video game, which are then sent to a motion generating system integrated within either a platform or a seat. While, as late as 2009, the company struggled to build a consistent revenue stream, things improved when management decided to dedicate itself to the commercial theatre market. Although D-Box is still losing money, revenue is improving. The company’s Q2, 2013 topline of $3.71-million was its best ever, and an 83% increase over the same period a year prior.

Cinemark is the third largest exhibitor in the U.S., operating 3,918 screens across 39 states. It trails only Regal Entertainment, which has 6,621 screens and AMC, which has approximately 5,034 Screens

Li says the win with Cinemark will put increasing pressure on major exhibitors like Regal, AMC and Carmike to sign-on to D-BOX as, he offers, D-BOX is now the industry standard of theatrical motion technology.

Shares of D-Box closed Friday even at $.27.

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