Please refer to page 210 for important disclosures and analyst certification, or on our website macquarie/research/disclosures. GLOBAL Analyst(s) Macquarie Capital LimitedWendy Huang, CFA+852 3922 3378 wendy.huangmacquarieHillman Chan, CFA+852 3922 3716 hillman.chanmacquarieTingting Si+852 3922 1321 tingting.simacquarieIvy Luo+852 3922 1507 ivy.luomacquarieJoe Yu+852 3922 1160 joe.yumacquarieMacquarie Capital (USA) Inc.Chad Beynon+1 212 231 2634 chad.beynonmacquarieTim Nollen+1 212 231 0635 tim.nollenmacquarieMatthew Brooks, CFA+1 212 231 1585 matthew.brooksmacquarieAmy Yong+1 212 231 2624 amy.yongmacquarieJohn Cardoso+1 212 231 0472 john.cardosomacquariePaul Golding+1 212 231 8003 paul.goldingmacquarieMacquarie Capital Securities (Japan) LimitedDamian Thong, CFA+81 3 3512 7877 damian.thongmacquarieMacquarie Securities Korea LimitedKwang Cho+82 2 3705 4953 kwang.chomacquarieSoyun Shin+82 2 3705 8659 soyun.shinmacquarieMacquarie Securities (Australia) LimitedJennifer Kruk, Ph.D+61 2 8232 6422 jennifer.krukmacquarieMacquarie Capital Securities India (Pvt) LtdAlankar Garude, CFA+91 22 6720 4134 alankar.garudemacquarieMacquarie Securities (Thailand) LimitedChalinee Congmuang+66 2 694 7993 chalinee.congmuangmacquarie3 February 2017 Global movie and cinema The Premiere of Premium Structural forces for a rebound in PRC box office in 2017 Cinemas are increasing global integration through cross-border M&A and productions. Among the top box office countries, China stands at number two with 18% global market share in 2016 and growing. With the foreign movie quota to be raised (we expect clarity in 1H17) and the negative impact of the online subsidy removed, we forecast Chinas box office revenue growth to accelerate to 13% YoY in 2017 (vs 1% in the US), and to surpass the US in 2021. In the sector, we like market leaders and those with high IP. In conjunction with this report, we initiate coverage of five Chinese names; Macquaries US team has also updated its forecasts to reflect recent trends in both the US and China. Technology and concessions to drive premium experience The premium movie-going experience is increasingly important in light of significant growth in home video and a shortening of the theatrical window. Globally, Premium Large Format (PLF) screens make up only 1% of the screens but the number is growing at a much faster pace than the overall sector (26% vs 8% in 2015). Within the PLF, the IMAX format is the clear leader with over 53% market share. Cinema operators are pulling levers to monetize audiences through concession offerings such as F&B and advertising. Our analysis suggests that global leading cinema operators are generating 30% of their revenue from concessions, which are also margin-accretive. The power in the industry is moving downstream The Big Six US film studios remain in the centre of global movie production yet Asia producers are emerging with the increasing popularity of orient-themed movies and a co-production model. Upstream movie content production is volatile and subject to individual project risks, therefore, all content producers have been aggressively accumulating IP (intellectual property) to build up a sustainable moat. Notably, cinema operators are gaining more power in deciding what content to play at their cinemas and thus are determining the ultimate box office for individual movies. The top-five cinema chains collectively controlled half of the total movie screens in the US in 2015, vs only 30% in China. We expect China to follow the US and we favour consolidators Wanda Cinema and AMC, plus Disney for its IP and franchises. Disruptors: Internet plays a bigger role In China, Tencent, Alibaba and Baidu (TAB) have recently been expanding their reach from movie ticket distribution to production. TAB have all set up production companies to gain control over the content and move upstream. Online booking contributed over 70% of total ticketing in Asian countries like China and Korea but penetration in the US was only 20% in 2016, on our estimates. For the US studios, digital has also grown from 12% of revenue in 2010 to 49% at the end of 2016, with significantly higher margins than physical distribution (40% vs 15%). Valuation and top picks Given higher growth outlooks, emerging market movie stocks are trading at over a 30% premium to developed markets on EV/EBITDA and P/E multiples. Over a 12-month horizon, this universe should trade on box office revenue expectations. On a three-year basis, we recommend playing the sector on the structural changes via industry consolidator and internet companies. Our top picks across the global value chain are Wanda Cinema, AMC, IMAX US, IMAX China, Alibaba and Disney. Macquarie Research Imax China Holdings 6 February 2017 2 Macquarie global movie and cinema coverage Company Ticker Rec Price (LC) TP (LC) UP/DN (%) China Alibaba BABA US OP 102.07 123 21% Baidu BIDU US N 174.10 182 5% Baofeng 300431 CH UP 40.79 25 -39% IMAX China 1970 HK OP 36.10 42 16% Leshi 300104 CH OP 36.60 50 37% SMI holding 198 HK N 0.73 0.78 7% Tencent 700 HK OP 204.40 240 17% Wanda Cinema 002739 CH OP 57.98 74 28% US 21st Century Fox FOXA US N 31.29 33 5% AMC Ent. AMC US OP 34.00 40 18% Cinemark CNK US N 42.16 44 4% Comcast CMCSA US OP 75.95 79 4% Disney DIS US OP 109.30 125 14% IMAX Corp IMAX US OP 33.05 43 30% Lionsgate LGF US OP 28.68 26 -9% Netflix NFLX US N 142.45 130 -9% Regal Ent. RGC US OP 22.87 25 9% Sony 6758 JP OP 3505.00 4250 21% Time Warner TWX US N 96.38 100 4% Viacom VIAB US N 41.97 35 -17% Korea CJ CGV 079160 KS OP 76700 100000 28% CJ E&M 130960 KS OP 88300 91000 6% Australia Village Roadshow VRL AU N 4.03 4.18 4% India Eros International EROS US OP 12.00 20 67% Inox Leisure INOL IN NR 226.70 NR na PVR PVRL IN NR 1270.00 NR na Thailand Major Cineplex MAJOR BKK OP 31.75 35 10% Source: Company data, February 2017 Prices as of 27 Jan 2017 Inside Valuation . 3 Top picks across the global value chain . 4 Global Trends . 9 China: resetting for new growth phase . 18 US: 2017 will be another record year . 27 Appendix: 2017 box office bottom-up forecast . 33 China: Wanda Cinema Line Co. - Go for premium consolidator . 37 Imax China Holdings - A unique asset worth the premium . 60 SMI Holdings Group - Seeking growth at a reasonable price . 81 Leshi Internet (A-share) - Way more than hardware . 98 Baofeng (A-share) - Video and VR treading water still . 122 Tencent - Pan entertainment strategy unfolding . 143 Alibaba Group Holding - Alibaba goes to Hollywood . 146 Baidu - From content distributor to producer . 148 US: IMAX - Looking for purple patch plus dividends . 152 Regal Entertainment Group - We like RGC in the US . 169 The Walt Disney Company - Virtuous circle starts with the studio . 172 Comcast - Breaking into China . 175 Lions Gate Entertainment - A Growing Global Presence . 177 Japan: Sony - Will Sony sell a stake in Pictures? . 179 Korea: CJ CGV - Better China outlook in 2017 . 183 CJ E&M Corp - China could be a silver lining for movie division . 186 Australia: Village Roadshow - Is the Force still with you? . 189 India: MacVisit: PVR - Ahead of the curve . 192 MacVisit: Inox Leisure - A close # 2 in Indias movie theatre business . 198 Eros International - Digital money for digital content . 204 Thailand: Major Cineplex - The Thai blockbuster . 207 Macquarie Research Global movie and cinema 3 February 2017 3 Valuation Globally, we value movie and cinema stocks mainly based on forward EV/EBITDA and cross-check with forward PE. Emerging market movie stocks are trading at an over-30% premium to developed markets on both metrics, due to their higher growth outlook. The emerging market movie and cinema companies are expected to see revenue grow 30%/16% in FY17/FY18 vs. developed market peers at 13% and 10% during the same period. Given the sustainable cash flow based on screen expansion and revenue per screen, we also conducted a sanity check with DCF methodology for movie and cinema stocks. Fig 1 Global movie and cinema valuation Source: Bloomberg, Macquarie Research, February 2017; data priced as of 27 January 2017, note VIAB target price raised to $42 on 3 February Macquarie Research Global movie and cinema 3 February 2017 4 Top picks across the global value chain Capacity expands but not the box office According to MPAA (Motion Picture Association of America), global box office sales reached US$38.3bn in 2015, up 5% yoy and at a 4.1% CAGR over 2011-2015. On the international front, we note that capacity continues to expand with cinema buildout but box office revenue growth is slowing. In 2016, US box office sales increased 2.2% yoy to US$11.4bn while the China market grew 3.7% yoy to Rmb46bn (US$6.8bn). In 2016, China surpassed the US in both number of screens (41k vs 40k) and film admissions (1.37bn vs 1.32bn). With the foreign movie quota to be re-negotiated in February 2017 and a normalized base comp, we expect box office revenue in China to grow 13% in 2017 vs 1% in the US. Admittedly, China has gone through a three-year fast expansion period (There were 903 new theatre openings in 2013 which rose to 1,612 in 2016). The capacity expansion, to certain extent, has diluted revenue per screen from US$190k in 2013 to US$166k in 2016. With the recovery in box office revenue growth in 2017 and a slowing pace of capacity expansion (we estimate 1,091 theatres to be added), operating efficiency and revenue per screen should gradually improve. Rising income and higher movie-watching frequency should eventually help China surpass the US in box office sales by 2021. Premiumization of the movie experience A premium movie-going experience is also increasingly important in light of significant growth in home video and a shortening of the theatrical window. Premium Large Format (PLF) screens make up only 1% of the screens worldwide but the number is growing at a much faster pace than the overall sector (26% vs 8% in 2015). Within PLF, the IMAX format is the leader with over 53% market share in 2015. Dolby is the fastest-growing competitor with its global cinema number expected to increase from 30 in 2016 to over 160 by 2018. Yet, this is still a small number compared to IMAX which is expected to have over 1,500 theatres globally by 2018. Additionally, cinema operators are pulling levers to monetize audiences through concession offerings such as F&B and advertising. Arguably the most successful in this space, Cinemark has grown concessions/person for a record 39 consecutive quarters in the US as of 3Q16. Our analysis suggests that global leading cinema operators are generating 30% of their revenue from concessions, which enjoys a gross margin 40ppts higher than the traditional ticketing business. The power in the industry is moving downstream Upstream movie content production is volatile and subject to individual project risks, therefore, all the content producers have been aggressively accumulating intellectual property (IP) to build up a sustainable moat. Disney has leveraged the franchise IP model to create a consistent stream of profitable films, taking four of the top five N. America revenue slots in 2016.The Big Six US film studios remain in the centre of global movie production yet Asia producers are emerging with the increasing popularity of orient-themed movies and a co-production model. As a much established market, the US film production industry is also highly concentrated with the top-four studios commanding over 70% share, whereas only c.10% share is taken by the top-four studios in China. Furthermore, cinema operators are gaining more power on deciding the theatrical window and ultimate box office for an individual movie. The top-five cinema chains collectively controlled half of the total movie screens in the US in 2015, vs only 30% in China. We expect industry consolidation will accelerate in China in the next two to three years with the top-five players share reaching 50% as small independent cinema chains dont have the scale and resources to compete against big players when overall industry growth slows down. Macquarie Research Global movie and cinema 3 February 2017 5 Disruptors: Internet plays a bigger role In China, Tencent, Alibaba and Baidu (TAB) have recently been expanding their reach from movie ticket distribution to production. In order to gain control over the content and increase bargaining power towards content providers, TAB have all set up production companies to produce content directly. Internet companies can also leverage the consumer behaviour data they collected from online ticketing platform to help identify the hit themes for the future movie production. Online booking contributed over 70% of total ticketing in Asian countries like China and Korea but penetration in the US was only 20% in 2016, on our estimates. For the US studios, digital has also grown from 12% of revenue in 2010 to 49% at the end of 2016, with significantly higher margins than physical distribution (40% vs 15%). Macquaries US theatres analyst, Chad Beynon notes that having an in-home movie option (close to the box office premiere) continues to be an important one. For movie theatre stocks (RGC, CNK and AMC), the theatrical window and the overall theatre/studio relationship are the most critical elements to the business model. Since we havent seen many other players outside of the Big Six studios (and some independents) matter significantly in terms of the overall production/distribution of theatres, we believe a new player like Amazon certainly adds to a bearish thesis for the group, although, at this point, we dont see it as a major threat to overall profits. There is always the potential for in-home disruptors in the $12bn+ (admission revenue) US movie