Maoyan Entertainment: Box Office Performance, Potential Dividend (OTCMKTS:MAOFF)

Elevator Pitch

Maoyan Entertainment (OTCPK:MAOFF) [1896:HK] stock is assigned a Hold investment rating.

My earlier September 17, 2020 initiation article highlighted that MAOFF is the biggest “online movie ticketing services provider in China” in terms of “the gross merchandise value of movie tickets sold.” The current update touches on Maoyan Entertainment’s shareholder capital return outlook and the negative read-throughs from the Mainland Chinese film industry’s performance during the Dragon Boat Festival holiday.

I continue to award a Hold rating to Maoyan Entertainment. The box office performance for China during the 2024 Dragon Boat Festival indicates that the near-term revenue growth prospects for MAOFF are weak. On the other hand, there is a good possibility that the company could initiate dividends for 2024 taking into account its profitability outlook and the Chinese regulators’ stance on capital return.

Maoyan Entertainment’s shares are traded on the Stock Exchange of Hong Kong and the OTC (Over-The-Counter) market. The trading liquidity for the company’s OTC shares is limited. But the three-month average daily trading value for Maoyan Entertainment’s Hong Kong-listed shares was reasonably high at $3 million as per S&P Capital IQ data. Investors can deal in the company’s liquid Hong Kong-listed shares with US brokerages such as Interactive Brokers or Hong Kong stockbrokers like Boom Securities.

Mainland China’s Recent Box Office Performance Was Disappointing

A recent June 22, 2024 Caixin Global commentary piece cited comments from Chinese movie company Alibaba Pictures’ President indicating that “the total number of (movie theater) viewers” is “under significant pressure” in China due to “competition against other types of video content.” The challenging outlook for the Mainland Chinese film industry is reflected in the country’s box office performance during the latest June 8-10 Dragon Boat Festival holiday.

Data from different sources indicate that China’s box office performance for the recent holiday period was poor.

Dao Insights, a China-focused consumer news portal, noted in a June 11, 2024 article that box office receipts in China amounted to around RMB300 million during the 2024 Dragon Boat Festival holiday based on data taken from Taopiaopiao (Maoyan Entertainment’s unlisted peer).

Separately, China Merchants Bank published a research commentary (not publicly available) titled “China Movie Industry Holiday Performance Commentary” on June 11, 2024. According to China Merchants Bank’s research citing data from Maoyan Entertainment, the country’s film industry delivered box office takings of RMB373 million for this year’s Dragon Boat Festival.

Both China Merchants Bank and Dao Insights highlighted that Mainland China’s actual box office takings for 2023’s Dragon Boat Festival was over RMB900 million. In other words, the country’s Dragon Boat Festival ticket sales were estimated to have declined between 59% and 67% this year.

As per China Merchants Bank’s June 11, 2024 research commentary, the average movie ticket price decreased slightly by -1.5% YoY from RMB40.4 in 2023’s Dragon Boat Festival to RMB39.8 in this year’s holiday. Therefore, lower volume is the key contributor to weaker box office sales, rather than movie ticket price discounting. As such, it is a case of much fewer people going to the movie theaters for 2024’s Dragon Boat Festival holiday, which is consistent with industry insider Alibaba Pictures’ comments referred to above.

The market anticipates that Maoyan Entertainment’s revenue will increase by a modest +5% to RMB5,009 million (source: S&P Capital IQ) in FY 2024. As a comparison, MAOFF’s historical FY 2016-2019 top line CAGR was a significant +46% prior to the COVID-19 pandemic. China’s weak box office performance for the recent Dragon Boat Festival holiday provides support for the underwhelming top line expansion outlook for Maoyan Entertainment. In my September 17, 2020 write-up, I noted that MAOFF also offers “online ticketing services” for “other entertainment events such concerts” which could partially offset the weakness associated with movie ticketing services.

In summary, Maoyan Entertainment’s lackluster revenue growth prospects are a key negative for the stock.

Dividend Initiation Is A Potential Catalyst

Maoyan Entertainment has never paid out any dividends since the company’s public listing on the Stock Exchange of Hong Kong in February 2019. I take the view that there is a reasonably good chance of Maoyan Entertainment initiating dividends for FY 2024.

As a Hong Kong-listed company, Maoyan Entertainment discloses its financial performance on a semi-annual basis. The company’s prior FY 2023 earnings call was hosted on March 22, 2024, and MAOFF commented on its shareholder capital return approach at this event.

In response to a question on the company’s thoughts on dividends and share buybacks at the FY 2023 results briefing, MAOFF noted that its “2023 financial performance was good having realized a profitability turnaround” and indicated that it is “willing to share the fruits of success with shareholders.”

Maoyan Entertainment was loss-making for full-year FY 2020, and the 2H 2021 and the 2H 2022 interim periods as well due to the pandemic and related lock-downs in China. Notably, the company was profitable for both 1H 2023 and 2H 2023, and achieved a normalized net income of RMB1,029 million for full-year 2023.

Looking ahead, the analysts forecast that MAOFF’s normalized net profit will decrease by -6% to RMB972 million (source: S&P Capital IQ) in fiscal 2024. The sell-side’s expectations of Maoyan maintaining positive earnings this year are realistic. In the preceding section, I mentioned that the consensus FY 2024 top line growth estimate for MAOFF was +5%, and this is reasonable considering the revenue contribution from non-film offerings like concert ticketing services, and the absence of COVID-related headwinds for the movie industry. Also, the company has been managing its expenses well. Specifically, Maoyan Entertainment’s SG&A (Selling, General & Administrative) costs-to-revenue ratio decreased from 34% in 2022 to 26% for 2023.

Also, Chinese listed companies in general are more likely to initiate dividends or raise dividend payout ratios in response to the regulatory authorities’ advice or guidance. Goldman Sachs (GS) recently issued a June 24, 2024 research report (not publicly available) titled “The Returns Of Shareholders In China.” In this report, it is noted that Goldman Sachs analysts’ “meetings with the CSRC (China Securities Regulatory Commission) suggest that the policy commitment from regulators to encourage (Chinese) companies to return cash to shareholders via dividends and buybacks is high.”

In a nutshell, I think that the expectations of positive earnings for FY 2024 and pressure from regulatory authorities regarding shareholder capital return suggest that a potential dividend initiation for Maoyan Entertainment is likely. This will be a key positive for MAOFF.

Closing Thoughts

A Hold rating for Maoyan Entertainment is justified. While the stock has a potential dividend initiation catalyst, the company’s top line growth outlook is uninspiring. The stock is reasonably valued based on its Price-to-Earnings Growth or PEG multiple of 1.1 times. My PEG metric for Maoyan Entertainment is derived based on the stock’s consensus next twelve months’ normalized P/E of 8.4 times and its consensus FY 2023-2026 normalized earnings CAGR of +7.7% (source: S&P Capital IQ).

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.