Resurgence of Theatrical Experiences: Cinemark Holdings' Future Projections and Impact on Net Debt Leverage

Benchmark analyst Mike Hickey reiterates Cinemark Holdings Inc CNK with a Buy and a $19 price target. Hickey views CNK as a top pick in his EDM coverage. 

The analyst estimate CNK will release 2Q FY23 results on August 4. 

The domestic box office (DBO) exceeded his expectations in the quarter, compelling him to raise his 2Q FY23 growth targets. 

The analyst believes the DBO will exceed pre-pandemic performance over the long term as the enthusiasm from movie-goers to attend theatrical experiences gains momentum and product volume increases. He remains cautious on the consensus view for near-term DBO growth, as the pace of recovery has been very gradual. 

F2Q23 – Performance Consideration: Hickey estimate revenues increased 11% to $827 million (consensus: $844 million), and AEBITDA increased 20% to $167 million (consensus: $181 million). 

The analyst estimates AEBITDA margin of 20.2% 21. 

The domestic box office had a cumulative gross of $2.678 billion in 2Q FY23, delivering a significant upside versus Benchmark estimates of $2.408 billion. 

Cumulative gross was up 15% Y/Y, exceeding the Benchmark growth estimate of 3.5%. 

Despite this strong growth in the quarter, the cumulative gross in 2Q FY23 still represented only 82% of the pre-pandemic 2Q FY19 cumulative gross. There was a slight increase in the number of movie releases in 2Q FY23 compared to 2Q FY22.

However, both are significantly lower than the number of releases in 2Q FY19 (368). The average gross per movie has meaningfully increased from 2Q FY19 ($8.9 million) to 2Q FY22 ($13.7 million) and further slightly increased in 2Q FY23 ($13.9 million). 

The domestic box office top 10 films had a cumulative gross of $2.152 billion in 2Q FY23, delivering significant upside versus Benchmark estimates of $1.947 billion. 

Cumulative gross from top 10 films was up 10% Y/Y, far exceeding the Benchmark growth estimate down 0.2%. 

The cumulative gross from the top 10 films in 2Q FY23 represented an impressive 97% of the pre-pandemic 2Q FY19 comparable cumulative gross. The cumulative gross from the top 10 films in 2Q FY23 represented 80% of the total cumulative gross in the quarter, comparable to 68% in pre-pandemic 2Q FY19. 

The top 5 performing films in 2Q FY23 were The Super Mario Bros. Movie ($573.3 million), Guardians of the Galaxy Vol. 3 ($353.6 million), Spider-Man: Across the Spider-Verse ($331.8 million), The Little Mermaid ($277.4 million), and Fast X ($145.2 million). 

FY23-24 – Box Office: The analyst estimate that the FY23 and FY24 domestic box office will generate $8.2 billion (+11% Y/Y) and $9.0 billion (+10% Y/Y) in cumulative gross, respectively. 

He estimates net debt leverage will fall to 2.7x by FY24 through AEBITDA growth (consensus view) and debt redemptions. CNK's target is 2x – 3x net leverage. 

Comparable: CNK FY24 EV/EBITDA is 6.3x, compared to the peer group at 8.9x. 

Price Action: CNK shares traded higher by 3.39% at $16.16 on the last check Monday.