With Covid Fading, IMAX China Results Highlight Pre-Pandemic Cinema Troubles

Big-screen movie giant reports revenue-per-screen was just half of pre-pandemic levels in first half of 2020, even as other indicators approached pre-Covid figures

Key points:

• IMAX China returned to profitability in the first half of 2021, though revenue and profits remained below pre-pandemic levels
• Company’s revenue-per-screen was down 50% from 2019, spotlighting overcapacity that was already ravaging Chinese cinema operators pre-pandemic

By Doug Young

With Covid-19 now under control for a year in China, things have largely returned to normal for most aspects of daily life. But that’s not necessarily a good thing for certain industries like theater operators, whose pre-Covid decline is back in focus in the latest financial results from IMAX China Holding Inc. (1970.HK), the Chinese unit of big-screen cinema specialist IMAX Corp.

Cinema operators have been among the worst-hit industries worldwide during the pandemic, as many were forced to shut or massively scale back operations to limit the chances of spreading the virus. Staying open wasn’t even an option for Chinese chains, which were ordered to shut in late January 2020 and only allowed to start reopening during the summer of that year.

In its latest report covering the first half of 2021, IMAX China reported that “audiences have returned to theatres, particularly IMAX theatres, in numbers approximating pre-pandemic attendance levels” during the reporting period.

It spent much of the report talking about how the pandemic had affected its business, and how things were bouncing back from that. But one thing it didn’t discuss too much was the fact that business for Chinese theater operators was already hurting before the pandemic due to overcapacity and a maturing of the market after years of explosive growth.

Investors these days seem focused on the fact that “return to business as normal” isn’t necessarily good news, with Hong Kong-listed IMAX China’s shares closing at an all-time low of HK$9.67 on Tuesday before the results came out. The stock jumped 9% in Wednesday morning trade after the results were released, suggesting perhaps the figures weren’t as bad as many had feared.

But no matter how you slice it, the company’s situation doesn’t look too rosy. IMAX China isn’t a theater operator, but instead installs its trademark large screens in theaters run by other companies. Thus it can be seen as a good indicator of the broader industry in China, with a focus on the higher end of the market.

IMAX China previously issued a positive profit alert on July 19, which led to a brief jump in its stock. But those gains quickly evaporated as reality set in that a return to normal wasn’t necessarily anything to get too excited about. Even after the Wednesday bump to the HK$10 level, the stock now trades at about one-third of the HK$31 price from its 2015 Hong Kong IPO.

We’ll review the company’s headline revenue and profit figures, which were approaching ­– but not quite back to – pre-pandemic levels. But a more significant figure may be its box office revenue per screen, which is a “same-store sales” equivalent for movie theaters.

The company’s box office per screen totaled $185,000 for the first six months of the year, up sharply from $11,000 in the same period of 2020 when many theaters were mostly closed, according to the results announcement. But the latest figure was just half the $379,000 in revenue per screen for the first six months of 2019, the last comparable period before the pandemic.

Back to Profits

The huge drop in revenue-per-screen contrasted sharply with other big-picture numbers that were relatively positive. Most notably, the company returned to the black by posting a profit of $19.2 million for the first half of the year, reversing a $35.2 million loss in the year-ago period. The latest figure was still significantly below the $24 million profit IMAX China reported in the first half of 2019, the last comparable period before the pandemic.

Similarly, the company’s first-half revenue rose eightfold to $53.4 million from just $6.7 million in the year-ago period. Like the profit figure, the latest revenue was approaching, but still about 10% lower than, the pre-pandemic level of $59.3 million for the first half of 2019.

IMAX China noted that installation and maintenance activities for theaters equipped with its large screens were roughly at pre-pandemic levels during the first six months of the year. In the outlook section of the report, it said it expects total technology sales and maintenance revenue “to come in largely in-line with 2019 level for the full year.”

The bottom line is that IMAX China is operating in a very difficult market that is rapidly slowing after years of breakneck growth. A large buildup of screens in the years before the pandemic didn’t help the situation, with Variety recently reporting that overall revenue-per-screen had already plunged by more than a third to $133,000 in 2019 from $211,000 the previous year.

One other element hurting IMAX China was the company’s reliance on Hollywood blockbusters that are often made with a big-screen viewing audiences in mind. While China is largely back to normal, theaters in most western markets were still largely closed in the first half of the year, leading many Hollywood studios to delay releasing their biggest films until that situation improves.

“Pre-Covid-19, Hollywood films normally accounted for about 70% of IMAX box office ticket sales,” the company said. “The group believes release dates for Hollywood films will return to normal in the second half of 2021 given the reopening of the U.S. film, cinema and entertainment market.”

As an operator at the high-end of the market, IMAX China could be slightly better-positioned than other mainstream cinema operators in China, due to its focus on consumers who want an augmented experience they can’t get from simply watching movies on their TVs and computers at home. Demand for its products does appear to be picking up, with the company reporting it installed 23 new screens in the first half of the year, approaching the 30 it installed in the pre-pandemic first half of 2019.

At its current stock price, IMAX China trades at a price-to-earnings (PE) ratio of about 10, based on its 2019 profit that looks likely to be similar to this year’s profit. Its parent, IMAX Corp., isn’t expected to return to profitability until next year, and would have a PE of 19 based on the average analyst forecast for 2022. That could imply some upside for IMAX China’s stock, though much will depend on a resumption of Hollywood film releases and China’s ability to keep Covid-19 under control. 

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