Imax Analyst Sees Upside In China Theater Reopenings In May, “Years Of Liquidity”

Imax has “multiple years of liquidity” on its balance sheet and is poised to benefit from the reopening of movie theaters in China as early as mid-May, according to one veteran analyst tracking the company.

Eric Handler of MKM Partners reiterated his “buy” rating on Imax shares in a report Wednesday, though he lowered his 12-month price target on its shares to $20 from $24.

Imax has been one of several companies with stakes in exhibition to see its stock get pummeled in recent months as COVID-19 has shuttered movie theaters around the globe. Unlike exhibition circuits, Imax has an “asset-light business model,” Handler noted. Increasingly, it depends more on technology services than on its traditional base of physical movie theaters, though box office remains an important catalyst and marketing tool. The company also made aggressive bets on China, which now accounts for 40% of total revenue. In 2019, box office in China and in international markets outpaced domestic ticket sales for the first time.

On April 30, Imax will report its first-quarter results. The company’s shares have fallen nearly in half in 2020, hitting levels not seen in at least a decade. They opened Wednesday trading at $10.48, though they have remained stable over the past month.

The company has “a substantial amount of business flexibility in a zero-revenue environment with theatres closed globally,” Handler wrote. The analyst estimates that Imax has about $110 million cash on hand, plus $300 million from its revolving credit line. That means it could burn $10 million of cash per month without booking any revenue.

China last month reopened a few hundred theaters for the first time since a nationwide closure in January, but then had to reverse course and close them again after a resurgence of coronavirus cases. In Handler’s view, “good news could soon be on the way” as schools prepare to re-open by the end of April, followed by theaters.

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