Bona Film Group (BONA), one of the leading movie companies in China, reported strong fiscal earnings this week. Despite the strong result and a bullish tone for the 2015 year, investors sent shares down. After reading through the earnings report and conference call, I remain bullish and remind investors that this is the perfect way to capitalize on the growth of the Chinese box office. Bona Film Group remains the largest open position in the Stocks Under $20 portfolio.

The fourth quarter results were recently released for Bona and the company finished the year with a strong slate of movies and financials. The release of “The Taking of Tiger Mountain” was a huge event for Bona. The movie became the highest grossing in company history and ranks as one of the top ten grossing movies in China of all time, including foreign releases from the U.S. Back in November I discussed the importance of this movie and how it was a major catalyst as the company’s most anticipated movie ever. The movie grossed $141 million in the fourth quarter.

Fourth quarter earnings per share came in at $0.04. Revenue for the quarter was $52.6 million, an increase of 23%, but shy of estimates by around $11 million. Full year revenue increased 70.1% to $254.1 million. For the full year, Bona Film Group released 12 domestic movies and had a 15% market share of the Chinese box office.

Here were the top five contributors towards Bona’s revenue in 2014 (local RMB currency):

• “The Continent”: 630.4 million
• “The Man From Macau”: 524.9 million
• “The Taking of Tiger Mountain”: 416.9 million
• “The White Haired Witch”: 391.6 million
• “Overheard 3”: 300.6 million

As you can see, the record breaking “Taking of Tiger Mountain” was only the third highest contributor for the year. That is because around half of the box office of this movie will be contributed and recognized in the current first quarter. So this record breaking movie will not only impact fiscal 2014, but give a great start to fiscal 2015 for Bona as well.

Going forward, the current quarter is already showing strong results that should greatly boost shares after the next quarterly report. The company released “The Man From Macau 2” during the Chinese New Year season, which is the biggest movie going season in the country of China. This movie was a sequel to a well received movie and is now part of a franchise that the company continues to believe in long term. Bona plans to “make The Man From Macau franchise to be the symbol of Chinese New Year.” The movie has grossed around $120 million as of this week. Bona also announced that “The Man From Macau 3” has been officially greenlit and helps boost the 2016 lineup already.

“The Man From Macau 2” is one of four movies to be released in the current first quarter. The other three movies (The Grandmaster 3D, Tales of Mystery, Emperor’s Holiday) help boost an exciting 2015 year for Bona. In fact, the company says, “we have an even stronger film pipeline” in regards to the 2015 theatrical line-up. The company also said, “we are very confident our total box office for this year will definitely surpass the last year.”

Along with the strong first quarter, Bona highlighted several upcoming movies in its 2015 lineup:

• April 3: “Insanity”, award nominated film
• “The Secret Treasure”, referred to the movie as the Chinese version of Pirates of the Caribbean, which should have investors excited. The 2011 release of “Pirates of the Caribbean: On Stranger Tides” grossed $70 million in China, its third largest market behind the U.S. and Japan.
• “Shadows of the Devil City”, Chinese version of Phantom of the Opera but more horror film style
• “Bride Wars”, will be released in August to coincide with Chinese Valentine’s Day and is part of a prior partnership with Fox
• “The Swordmaster” to be released around Christmas time

Another key item covered in detail was the company’s new partnership on the Ang Lee picture “Billy Lynn’s Long Halftime Walk”, a story about a war veteran returning home before being sent off again. The movie will be released in many territories and based on its subject matter, could have success in the United States, similar to “American Sniper”. Here is what I had to say about the potential in China with Ang Lee’s name attached:

• “Ang Lee’s “Life of Pi” grossed $125.0 million in the United States. The movie had a huge draw in China, where it grossed $90.8 million. This was the next highest market behind the United States. Now keep in mind this was back in 2012, when the Chinese movie market was not nearly as developed as it is today. Another example is “Lust Caution”, a past Ang Lee film. That movie grossed only $4.6 million in the United States, but saw box office revenue of $17.1 million in China. This was back in 2007, when China’s market was starting to develop.”

Further details were revealed in concerns of the movie’s international rights and box office split. Bona has the theatrical rights in China, Hong Kong, Taiwan, and Macau, where it will distribute the film. As a 50% financier of the film, Bona will receive a 25% share in the worldwide pool of box office gross on the movie. I see this movie doing well in China and think the U.S. market will also outperform. The movie has U.S. actors and could also play well into the growing personal war story genre.

As previously stated, Bona is a great play on the growth of the Chinese movie market. In 2014, the box office in the most populous country grew 36% to around $4.7 billion. Bona saw its theatrical box office take increase 103% to $0.4 billion. Estimates call for the Chinese box office to grow to $6.4 billion in 2015. In fact, during the month of February, the Chinese box office passed the U.S. for the first time ever due to the Chinese New Year holiday. This celebration lasts from February 18 to 24^th and only allows Chinese movies to be shown in theatres, giving a company like Bona the inside track.

Bona enjoys capitalizing on the box office growth through its movies and also its theatrical segment. Bona added three new movie theatres in the fourth quarter giving it a total of 25 theatres and 208 screens in China. The company expects to open five additional theatres in the first quarter. The current goal is to open eight to ten theatres in China next year, with a goal of ending 2016 with 40 to 50 theatres.

While the film distribution is the bread and butter of the company’s revenue contribution, the movie theatre segment provides better margins and is shaping up to be one of the best catalysts going forward. In the fourth quarter, the theatre segment saw revenue of $20.9 million, the second highest segment behind film distribution ($32.4 million). The movie theatre segment had a profit of $11.6 million (55.5% margin) compared to $15.2 million (46.9% margin) for film distribution. For the full year, the movie theatre segment had revenue of $79.8 million. The segment had a profit of $46.1 million (57.8% margin), trailing only film distribution ($62.4 million), whose margin was 35.3% for the full year. You can quickly see how the addition of more theatres could improve the overall profitability of Bona Film Group.

Shares of Bona were added to the Stocks Under $20 portfolio at a cost of $6.14 per share. I continue to believe that shares are undervalued here below $8. I think investors are underestimating the 2015 and 2016 lineup of films and the growth of the Chinese movie market. Shares should see double digits by the end of 2015 or early 2016. Bona remains one of my favorite international plays on the market today.