Asia Pacific Equity Research
18 January 2011
Bona Film Group Ltd.
BONA, BONA US
A 'blockbuster' distributor
Price Target: $8.50
ChinaChina InternetDick Wei
(852) email@example.comJ.P. Morgan Securities (Asia Pacific) Limited
(91-22) 6157 firstname.lastname@example.orgJ.P. Morgan India Private Limited
(1-212) email@example.comJ.P. Morgan Securities LLC
BONA share price ($)NASDAQ Composite (rebased)
YTD1m3m12mAbs 6.2%-12.3%-27.8%-27.8%Rel 2.3%-17.2%-40.9%-46.7%
See page 36 for analyst certification and important disclosures, including non-US analyst disclosures.
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Initiating coverage with an Overweight rating and Dec-11 PT of US$8.5.
Bona Film Group is the leading film distribution company inChina. The company has also expanded into film investment andproduction, theatres, film-related advertising, and talent agency businesses.China’s box office per capita is currently one-sixteenth of the US. We seeBona Film as a high growth potential stock backed by a solid Chinaentertainment consumption story.
A beneficiary of the China entertainment consumption growth:
Weexpect the company to be a key beneficiary of rising disposable income,rapid growth in the number of screens and theatres, increase in the numberof good quality domestically-made movies, and lifestyle upgrade in China.According to EntGroup’s forecasts, the Chinese film industry’s revenue isexpected to record 2009-2012 CAGR of 38%, to become a US$4.3 billionmarket by 2012.
Distribution-centric vertically integrated business model:
Building on itssolid base in movie distribution, Bona Film has expanded vertically intoother parts of the movie value chain—from production to theatrical. Thecompany’s expertise and presence throughout the film industry chainprovides it a competitive advantage in identifying and gaining access topromising films. In future, Bona Film should benefit from bettermonetization of non-theatrical channels, international distribution, and film-related advertising, in our view.
Strong management team:
Bona Film’s management team has a strongtrack record in the film business. The founder Dong Yu has over 15 years of experience in film distribution. Nansun Shi is a Hong Kong film producerand presenter with over 30 years of experience in the film industry. Since2003, Bona Film has distributed 139 films (including 29 internationally).
Our Dec-11 PT of US$8.5 implies 25x 2011E and 21x 2012E non-GAAP
We expect the company to register 2010E-2012E EPS CAGR of 38%. Key risks to our price target are increasing reliance on in-houseproduction, revenue concentration from top films, change in the regulatorylandscape, and departure of key management.
Reuters: BONA.US, Bloomberg: BONA US
US$MM, Y/E Dec FY09 FY10E FY11E FY12E FY09 FY10E FY11E FY12E
Sales 38.4 50.3 159.7 209.6ROE (%) 31.1-5.610.9 11.8 52-week range US$6.14-8.50Operating profit 5.6 9.6 25.5 33.7ROIC (%) 26.7-3.69.5 10.3 Shares outstg 58.9MMEBITDA 6.5 10.8 27.1 35.7GAAP dil. EPS (US$)
Avg daily volume 0.2MnPre tax profit 5.6 -3.9 24.9 32.1
0.000.000.05 0.12 Avg daily value 1.1MnReported net profit 4.2 -5.8 21.0 25.5
0.03-0.010.14 0.05 Index (NASDAQ) 2,755Reported EPS (US$) 0.13 -0.15 0.34 0.41
0.08-0.020.09 0.20 Free float 30%P/E (x) 49.0 nm 18.0 15.0
Dividend yld 0
Adjusted EPS (US$) 0.16 0.22 0.34 0.41
Absolute perf. (%) -12.3-27.8-27.8 Market cap US$0.4B
Diluted P/E (x) 37.4 28.5 17.8 14.9
Relative perf. (%) -17.2-40.9-46.7 Price target US$8.5EV/EBITDA 59.2 35.4 14.1 10.7Cash (US$MM) 7124 170 204 Date of price Jan 14, 2010P/B (x) 481.8 2.0 1.8 1.7Equity (US$MM) 20184 205 231Y/E BPS (US$) 0.0 3.0 3.3 3.7
Source: Company, Bloomberg, J.P. Morgan estimates. * Note: Adj. EPS excludes share-based compensation expenses.