IMAX CHINA:Disappointing 2016box office……but richpipeline points to rebound in 2Q17F Await abetter entry point;maintain Neutral

No surprise box office ending this year.Following34% box office growth in 2014 and 44%in 2015,we expect only 3% growth in 2016F due to the high basethe previous two years, fewerticket subsidiesand alack of blockbuster films.Expected YoY monthly box office in Oct/Nov/Decis-19%/-10%/-5%reflectingthe lackluster performance ofrecently debuted IMAX films. We expect a box office rebound in 2Q17Fbased on IMAX Corp’sambitious 2017 film pipeline, whichfor now includes24 IMAX films, among them Transformers5, Fast8, and Star Wars: Episode8. Before the year is out, the list could grow to 47 new IMAX films, similar to the company’s film output in each of the previous two years.

IMAX Corp exploring newbusiness.IMAX Corp recently announced a dealwith Marvel Television and ABC Televisionwhereby IMAX will premiere the new ABC series The Inhumansbased on Marvel characters. The series will playin IMAX commercial theatresglobally, a first for a live-action television seriesdebut. We expect theinitiative to enhanceIMAX's brand awareness and reputation for high quality, though the short-term impact to IMAX Corp and IMAX China’s financial performance is likely to be small.

Maintain Neutralrating;wait for a better entry point. Given (1)China’s weak box office performanceof lateand (2)the high base in1Q16 in terms ofbox office performance(50% YoY growth), we see little chance of a rebound in IMAX China’s fundamentals, at leastin the short term. Thus,we maintain our forecastsand Neutral rating on thefirm. Our unchanged target price of HK$38.80remainsbasedon 30x 2017F P/E. We expect 1Q17Fto be a possible new entry point for the company in anticipation of abox office rebound beginningin 2Q17F.