Imax shares are up more than 7% in pre-market trading — potentially headed for a new all-time high — following the long-expected formal announcement of an IPO for its Chinese venues that could boost the parent company’s valuation. The large screen theater company says that a Cayman Islands subsidiary, Imax China Holding, filed for the public offering with shares to be listed on the Hong Kong Stock Exchange. Imax will own 80% of the entity.
Last year two local companies – CMC Capital Partners and FountainVest Partners — paid $80 million for a 20% stake in Imax’s Chinese operations. CEO Richard Gelfond told analysts last month that “part of our long-term plan in China has always been to find liquidity for them through a variety of alternatives, including the possibility of a public offering.”
Imax says in an SEC filing that no decision has been made about the timing or terms of the IPO “or whether the proposed transaction will ultimately be approved by the Hong Kong Stock Exchange.” A heavily redacted prospectus shows that the Chinese operation in 2014 generated a profit of $22.6 million, up 30% vs the previous year, on revenues of $78.2 million, up 40%. There were 239 theaters in the network as of the end of March, with 219 new ones planned.
Gelfond is non-executive Director and Chairman of the Chinese company. Former Sony Pictures exec Jiande Chen is the CEO.
The filing adds that Imax’s Chinese operations plan “to pursue potential screening opportunities for TV dramas, live shows, sports events and other alternative content in our theatres, as well as to explore the possibility of working with certain third parties to establish a fund to finance Chinese language films. We also intend to develop businesses and make investments in new areas that leverage the Imax brand.”
It’s easy to understand why Imax execs are so focused on China. Its theaters there generated $62.9 million in box office revenues in Q1, making it the first quarter when the country surpassed the U.S. in total sales for the company. Imax’ network there grew by 40% last year.
Investors may be willing to pay a high price to get in on the growth opportunity. China’s biggest exhibition chain, Wanda Cinema Line, trades for about 44 times its 2015 cash flow, Stifel Research’s Benjamin Mogil notes this morning. He figures Imax China could go for about 25 times next year’s cash flow — which would help the parent company “to trade higher as well.”
Wall Street already loves Imax: Its shares have appreciated more than 54% over the last 12 months, and more than 25% since the beginning of this year.