Why did Hengdian Film and Television, which wants to be listed, issue two prospectuses in two weeks?

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The main business of Hengdian Film and Television is cinema distribution, film projection and related derivative business, and the main business income comes from cinema distribution income, film projection income, sales income and other income. The proportion of cinema distribution and film projection revenue is relatively high. From 2014 to 2016, the proportion of cinema projection business has been maintained at more than 80%. Compared with Wanda Film and Television, a listed company in the same industry, Hengdian Film and Television is more dependent on cinema distribution and film projection revenue, the former five in a row.

after submitting the IPO prospectus for the first time in June last year, Hengdian Film and Television submitted its latest prospectus on Aug. 2, but was quickly removed. On August 14, Hengdian Film and Television once again submitted an updated version of the IPO prospectus. Inexplicably, there are many data differences between the prospectus released in August and last year's prospectus, one of which is more than 700 million yuan.

actors often go to "Da Hengguo", what the media call "Oriental Hollywood", and Hengdian Film and Television, the operator of Hengdian Film and Television City, a subsidiary of Hengdian Holdings, will once again seek to enter the capital market.

after the IPO prospectus was first submitted in June last year, Hengdian Film and Television submitted its latest prospectus on Aug. 2, but it was quickly withdrawn. On August 14, Hengdian Film and Television once again submitted an updated version of the IPO prospectus. Inexplicably, there are many data differences between the prospectus released in August and last year's prospectus, one of which is more than 700 million yuan.

in the 2016 prospectus, revenue in 2014 and 2015 was 1.22 billion and 2.185 billion respectively, and net profit was 118 million and 344 million respectively. In the prospectus for 2014 and 2015, the operating income of Hengdian Film and Television was 1.181 billion yuan and 2.113 billion yuan respectively, while the net profit dropped to 92.6539 million yuan and 327 million yuan respectively-- the difference in revenue in 2014 and 2015 was 31.9648 million yuan and 72.0445 million yuan respectively, and the difference in net profit was 25.87 million yuan and 17.29 million yuan respectively.

August 02, 2017 declaration

August 14 .jpg

2016 filing

secondly, in the 2017 prospectus, the cost of film projection business in 2014 and 2015 was 859 million yuan and 1.436 billion yuan respectively. In the 2016 prospectus, the two figures are 887 million yuan and 1.5 billion yuan, respectively. In the two prospectuses, the difference in the cost of film projection business between 2014 and 2015 was 32 million yuan and 68 million yuan.

what is even more exaggerated is that in "main Business income by region", the data of the two versions of the prospectus show that the difference in revenue in East China in 2015 is more than 700 million yuan.

in the 2017 prospectus, revenue in East China in 2014 and 2015 was 523 million yuan and 848 million yuan respectively, while in the 2016 prospectus, the two figures were 936 million yuan and 1.619 billion yuan. In the two reports, the difference in revenue in East China in 2014 and 2015 was 413 million yuan and 771 million yuan, respectively.

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Financial data accounting allows errors. Small fluctuations are understandable. But why are the financial data so different in the two prospectuses? Hengdian Film and Television did not reply to the reporter, but its secretary Pan Feng said in an interview with the media, "during the examination at that time, the CSRC asked the accounting audit method to be changed from the total method to the net method. Therefore, some revenue decline, reduction, revenue and costs are reduced in proportion, but also in order to be comparable with other companies."

in addition to the differences in financial data, in the latest prospectus, Hengdian Film and Television also adjusted the total amount of funds raised, increasing the funds for cinema construction projects from 2.486 billion to 2.363 billion, and the supplementary current capital is still 500 million. the total amount of funds raised has been reduced by 123 million overall.

Hengdian Film and Television's main business is cinema distribution, film projection and related derivative business, and its main business income comes from cinema distribution income, film projection income, sales income and other income.

cinema distribution and film projection revenue account for a relatively high proportion. From 2014 to 2016, cinema projection business accounted for more than 80 per cent, compared with Wanda Film and Television, a listed company in the same industry. Hengdian Film and Television is highly dependent on cinema distribution and film projection revenue, and the former has accounted for only about 50% of the company's projection business for five consecutive years.

although Hengdian's revenue and profits continued to grow during the reporting period, the main source of profits came from derivatives such as popcorn rather than the film projection business. According to the prospectus, from 2014 to 2016, from January to June 2017, the gross profits of Hengdian film and television selling business, advertising business and other businesses accounted for 73.53%, 48.23%, 65.07% and 69.74%, respectively. In other words, the most profitable department of Hengdian Film and Television is not the main business, but comes from selling goods, advertising and other businesses.

it is worth mentioning that among all the items sold, popcorn has the highest gross profit margin. The average selling price of popcorn with a cost of only 2.29 yuan is 13.3 yuan, and the average gross profit margin is as high as 70%. In 2016, the gross profit margin of popcorn even reached 81.31%.

in addition, the growth rate of cinema business in Hengdian cinema line is not stable. In 2015, the film projection business grew by 86.58% compared with the same period last year, but the growth rate of the business slowed sharply to 3.33% in 2016. At the same time, the asset-liability ratio of Hengdian Film and Television in 2014, 2015 and 2016 was 79.76%, 62.72% and 51.62% respectively, which is much higher than the average of the industry. Since 2016, the film market has been suddenly cold, and the rejection of the time cinema line IPO before Hengdian Film and Television IPO has added many unpredictable factors to the IPO of cinema companies.

since 2014, under the background of the rapid development of the film market, cinema lines have begun to make efforts to the capital market. After Wanda cinema line became the first share of cinema line, Hengdian Film and Television, Zhejiang Times Cinema Line, Jinyi Cinema Line and so on have disclosed the IPO prospectus one after another.

Hengdian Film and Television is based on cinema license, mainly expanding asset-linked cinemas, supplemented by signing up to join cinemas. When the market in first-and second-tier cities has been relatively saturated, Hengdian Film and Television has focused on the third-tier and lower-tier cities, and plans to raise funds mainly in third-and fourth-tier and county-level cities.

according to the prospectus, as of June 30, 2017, the company has 310 opened cinemas, of which 245 are asset-linked cinemas and 65 have joined cinemas, covering 28 provincial administrative regions across the country (except Hong Kong, Macao and Taiwan, Xinjiang, Xizang and Hainan). In the future, the company will further expand the scale of cinema construction.

however, with the rapid growth of the film market and the investment construction of cinemas encouraged by the state, the construction of cinemas has quickly completed the market sinking. According to People's Daily, as of March 2017, the number of screens in China had reached 44489, surpassing the entire North American region and becoming the world's largest film market in terms of market capacity.

the sinking of cinema lines is nearly saturated, and the dividend period of relying on cinema growth to expand the increment of the film market has passed. On the other hand, with the cross-regional expansion of competitors and the gradual entry of new investors, the number of cinemas will further increase, resulting in different increases in commercial real estate rents and personnel costs. cinema operation will face more fierce market challenges.

in this grim background, the 2.36 billion yuan raised by Hengdian Film and Television will be invested in cinema construction projects, which does not seem to be a good business.

Edit: xiongwei