G.H.Y Culture & Media Holding Co., Limited

G.H.Y Culture & Media Holding Co., Limited ("GHY" or the "Company") is offering 21.696m shares comprising 18.696 Placement Shares and 3m Public Offer shares at $0.66 each. The IPO will close on 16 Dec 2020 at 12pm and starts trading on 18 Dec 2020 at 9am. The market cap based on the IPO price is around $708.7m.

Principal Business

The Company is an entertainment business that focuses on the production of dramas, films and concerts in the Asia-Pacific region. The Company has produced several dramas and films in the PRC, Singapore and Malaysia that have been broadcasted or distributed on major TV networks and leading video streaming platforms in PRC

  

For those drama fans, they "re-produced" a Chinese version of the Little Nonya starring Xiang Yun as the matriarch.

Corporate Structure

Past Productions and Releases

The Company operates its TV program and film production business under three different revenue models:

• Engaged by our customer (such as the TV network and/or video streaming platform) for production by our Group for a fixed fee. Under such arrangement, the customer will typically hold the rights to the drama or film 

• Developed for production by our Group and licensed or sold to our customer for a fixed fee. Under such arrangements, the Company may either (i) license the rights to their customers, being distributor(s) for a certain period of time and/or geographic region under the terms of the licensing agreement(s); or (ii) sell and transfer the copyright and ancillary rights to their customers 

• Developed for production by our Group and licensed to our customer for variable fees arrangements  

Upcoming productions and releases

Financial Highlights

It is pretty impressive to be able to generate a revenue of $66m in its first full year of existence and for the first half of FY2020, the Company generated revenue of $37m and net profit of $13m. It is also amazing that they were able to secure the rights to host Jay Chou's concerts, given his star status in this part of the world and the Company's lack of track record hosting such events! This is going to give UnUsuaL production a run for their money.

GHY's adjusted EPS of 1.16 for FY 2019 translate into a PER of 61x. The comparison between FY2019 and 1H2019 shows you how "unpredictable" this Company is as 1H 2019 profits is $11.6m and the full year profit is $12.4m. 

The 6M 2020 adjusted EPS is 1.21 and it is tough trying to "predict" what the FY2020 EPS will look like as first half profits included 2 Jay Chou concerts that were held in January in Singapore!

Having said that, I am "pleasantly surprised" that the Company tried their best to provide some guidance on page 215 and 216 of the prospectus under "trend information".  In a nutshell, the Company expects revenue to be recognised for 4 dramas in 2H2020. Due to Covid, Jay Chou concerts were postponed to 2021 (not sure if that is overly aggressive).

Assuming I am super bullish and that the EPS doubled to 2.42 cents, that will translate into a PER of 27x. Based on a dividend payout ratio of 30%, that will imply a yield of 1%. 

Given that I am not privy to how 2H2020 have performed, I would say that this IPO is fairly valued at 66 cents and investors are buying into 2021 and 2022.

Competitors

The TV program and film production business of our Group is largely based in the PRC and our

competitors are other drama and film production companies such as Huayi Brother Media Corp., Huace Group , Ciwen Media. Co. Ltd., New Classics Media and Perfect World.

Our competitors in the concert production business of our Group are other concert production

companies such as UnUsUaL Productions, Live Nation and One Production, IMC Live Global and

iMe Entertainment, which undertake concert productions in various countries.

Let use two key competitors for the peer analysis. 

Perfect World is listed on Shenzhen Stock Exchange. It generated revenue of S$1.6b and net income of S$306m for FY 2019, The EPS is 0.16 Singapore cents. and historical yield is around 0.6%.  According to Capital IQ, it is trading at historical PER of 35x and forward PER of 22x. The market cap of Perfect World is around S$11 billion.

UnUsUaL Limited generated revenue of $62m and net income of $6m. It has a market cap of $167m and is trading at a historical PER of 28x. Given that concerts and live entertainment events are badly affected by Covid-19, UnUsUaL is trading at a very high forward multiple of 163x according to Capital IQ. It will be a challenging 2021 for UnUsUaL.

Shareholders and Cornerstone Investors

Post the listing, the Company will be tightly controlled by the CEO, Guo Jing Yu, which holds a 59.60% stake. 

Cornerstone Investors subscribe for 162.7m shares that constitute ~15.2% of the Company. Cornerstone investors include Epical Entertainment (wholly owned by Perfect World), Hong Kong Chixin Investment, ICH Capital, iQIYI International (subsidiary of iQIYI listed on NASDAQ and in turn, subsidiary of Baidu), King Kong Media Production (owned by Mark Lee), V3 Brands and Ron Sim, Qilin Asset Management (Owned by Soilbuild), Songful Global and Yinson Capital. 

The cornerstone investors are primarily the HNWIs - High Net Worth Individuals, starting from Ong Pang Aik to Ron Sim. While I would have preferred to see more asset managers participating in this offering, it is also a good sign to see strategic investors like Perfect World and iQIYI investing in this Company.

Use of proceeds

The proceeds will be used to expand into TV and film production, concert production and general working capital.

Dividend 

The Company intends to distribute at least 30% of its net profit after tax generated  in FY 2020 and FY 2021. At least the Company is paying out dividends for FY 2020 results, which is a big bonus.

What I like about the Company

• Content is king - For those subscribed to Netflix, it is not just a on demand video platform. It is actually one of the biggest content producers. In the digital world, content is king and GHY produces the content that is being streamed on online platforms such as Youku or via the more traditional CCTV channels
• Proven creative team behind high quality and well received dramas and films - The Company was able to curate award winning scripts and seamlessly combine that with production capabilities. It is like a "one-stop" shop from script writing to production and eventual distribution
• Growing portfolio of artistes for concert production business - This Company is going to be a strong competitor to UnUsUaL production and has managed to secure the rights to Jay Chou's concerts in Singapore, Malaysia, Australia, Thailand, Japan and PRC on a long term basis. While concerts are currently "covid-hit", it should return when things return to normalcy and with PRC being the "crown jewel" market for most artistes, working with GHY will be the most logical thing to do

• Bright market prospects with synergies across different segments - With increasing demand for high quality productions in the Asia Pacific, prospectus look bright for this company. The Company intends to expand to new markets in Asia Pacific and create synergies across TV program, film production concert production and talent management

Some of my concerns

• Chinese regulatory and business environments are tricky and competitive - It is always tricky operating in China as rules and regulations can change overnight. Just look at what happened to Ant Financials when Jack Ma stepped on the toes of the Communist Party. Similarly, they canned some dramas when they felt that the "palace movies" were too revealing and distort the history. In addition, while Chinese market is huge, it is highly competitive as well

• Not many successful S-Chips listed here - history is stacked against Chinese companies listed on SGX. Many S-Chips failed due to a variety of reasons from lack of corporate governance to out right deception. Even the more successful Chinese companies suffer as a result of this perception

• TV, film and concert productions can be highly unpredictable - Those directors would tell you that the commercial success of any productions are highly unpredictable and in many instances, production can face delays and costs can over-run. This resulted in unpredictable income streams for the Company

• This is a people business and talent retention is key - The ability to attract talented script writers, production directors, artistes and keep them happy is like managing a football team where you must have excellent people management skills as well as strong support functions. The ability of GHY to succeed will depend greatly on how they can institutionalize this platform. Exactly to my point, the CEO, Mr. Guo and his wife, Yue Lina, and Wang Qing came from another competitor, Perfect World, currently listed on Shenzhen Stock Exchange.  

• Live events may not return till 2022 - given the fluidity of Covid, it is unlikely the Jay Chou concerts can contribute to bottom line unless we see live events returning to China first.

Mr IPO ratings

I like the fact that SGX is finally attracting non-REIT companies and this Company seemed to have good potential to expand outside China, producing good content and host great concerts. Having said that, the valuation is really high by all measurement, even if I compare it to the listed Perfect World.

I have applied for placement shares through DBS and was allocated zero. I should have tried my luck with UOBKH as the chances of getting some shares at UOBKH were higher. I understand someone at DBS applied for 1m shares and was allotted 33k shares while another person who applied for 100k shares at UOBKH received 20k shares. Maybe this can serve as a guide as to where to get your shares next time.

I am giving this IPO a 2 Chilli rating based on the reception and IPO sentiments. You should be able to flip it off. You can click here if you need a reminder on the Chilli ratings. 

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