IMAX Corporation Update

IMAX : NYSE : US$28.56
Target: US$34.50

IMAX Corporation is one of the world’s leading entertainment technology companies, specializing in motion picture technologies and large-format motion picture presentations. The company’s principal business is the design and manufacture of large-format digital and film-based theater systems and the sale or lease of IMAX theater systems or the contribution of IMAX theater systems under revenue-sharing arrangements to its customers.
All amounts in US$ unless otherwise noted.

Media — Film and Entertainment
Investment highlights
Among our top picks for 2014: As we step into 2014, we have identified IMAX as one of our primary stock picks. However, we believe that much of the anticipated strength in the share price could occur in the back end of the year. Thus, our recommendation is that investors use the initial months to build a position and situate themselves to benefit from what we expect would be supportive catalysts towards the end of 2014.
 Following a flat EBITDA trend through 2010-2013 (around the $100 million level), we expect a breakout well past that point starting 2014, thereby solidifying IMAX’s growth credentials in the market. We are projecting 81% growth in EBITDA from 2013-2015, driven mainly by screen growth. 2013 was depressed due to a dip in SSTLs and modest film performance.
 Stellar film slate expected in 2015 – In our view, one of the best in recent times. This should come into focus towards the latter half of 2014.
 New initiatives likely to gain prominence – The laser projector is expected to be rolled out at the end of 2014, while the home theatre system with TCL in China is planned to be launched in 2015.
 Possible dividends/buybacks.
The 2014 film slate: We discuss the 2014 film slate in this note. Our view is that it is a line-up that can hold its own, but not necessarily one that would surprise substantially to the upside. Putting it down to numbers, we see it as a $1,050k – $1,100k PSA type slate. This compares with our long term annual PSA forecast of $1.1 million. For 2014, we are now using $1,075k. This is still stronger than our 2013 estimate of $1,040k.
Target raised from US$32.00 to US$34.50 per share: As we roll forward our valuation to 2015, our target rises by US$2.50 to US$34.50. We continue to use a DCF analysis with an 8.5% discount factor.

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