IMAX is a buy despite weakness in China, Canaccord Genuity says

Some difficulties penetrating the Chinese market aren’t shaking Canaccord Genuity analyst Aravinda Galappatthige’s bullish take on IMAX (NYSE:IMAX).

This morning, IMAX reported its Q3, 2017 results. The company lost $0.01 on revenue of $98.8-million, a topline that was up 14.2 per cent over the same period last year.

“Our third-quarter global box office marked IMAX’s highest-grossing third quarter ever, growing 17% to $219 million,” said CEO Richard L. Gelfond. “In addition to our box office growing 18% in the domestic market, despite the overall North America box office decline of roughly 14%, we also saw exceptional performance from our international, ex-China box office. This segment, which represents 27% of our theater network, accounted for over 34% of our total box office last quarter – underpinning the significance of our growing presence in key markets such as Japan, India and Europe,” said , IMAX Corporation CEO. “Last quarter we laid out several initiatives aimed at increasing the revenue generation of our network and reducing our cost structure. While we are still in the early stages of fully implementing these initiatives, we were pleased with the tangible progress we made in the third quarter—facilitating heightened box office and notable margin expansion across our core business.”

Noting the company’s success in the U.S. market, Galappatthige says China remains tough for the company.

“Even as there are some early signs of a box office recovery in the US and ROW, China remains the draw back with PSA’s down 21.5% y/y in Q3,” the analyst points out. “Note, this is on the back of an already soft base in Q3/16 when China PSAs fell 43% y/y. This was followed by a 35% decline in Q4/16, 40% in Q1/17 and 28% in Q2. While the lack of seasoning of the newer IMAX screens is cited as one of the reasons for this weakness in PSAs, we note that there is also a general weakness in the overall China theatrical market. Recall, overall market growth slowed from 30-45% historically to 4% in 2016 and 3.7% in H1/17, despite the rapid expansion of locations/screens.”

In a research update to clients today, Galappatthige maintained his one-year price target of $32.00 on IMAX, implying a return of 52.4 per cent at the time of publication.