Hengdian Film and Television bet on the third-tier city that the number of cinemas will reach 400 by the end of 2018.

on August 22,2017, the IPO application of Hengdian Film and Television Co., Ltd. (hereinafter referred to as Hengdian Film and Television) successfully passed the examination and approval committee.

original title: Hengdian Department is the next city: Hengdian Film and Television IPO will bet on third-tier cities

compared with competitors such as Wanda Film, Hengdian Film and Television admitted that "the gross profit margin of comparable companies in the same industry is relatively stable and higher than that of companies."

on August 22, 2017, the IPO application of Hengdian Film and Television Co., Ltd. (hereinafter referred to as Hengdian Film and Television) successfully passed the examination and approval committee.

this is the fifth Hengdian listed company after Hengdian Dongfang (002056), Yinglohua (000795), Proco Pharmaceutical (000739) and Debon Lighting (603303).

according to the available data, compared with other first-class cinemas, the competitiveness of Hengdian Film and Television is still weak. Under such circumstances, Hengdian Movie and Television bet on cities below the third tier, raising 2.863 billion yuan through this IPO, of which 2.363 billion yuan is used for cinema construction projects, and the number of cinemas is expected to reach 400 by the end of 2018.

< strong > Commission of Development and Review questions: gross profit margin fluctuation, income details and industry competition < / strong >

1. The Development Review Committee asked Hengdian Film and Television to explain the specific reasons for the fluctuation of gross profit margin during the company's reporting period, the specific conditions of income and cost, and the reasons and rationality of the differences between gross profit margin fluctuations and comparable companies in the same industry. Whether the relevant information disclosure and risk disclosure are sufficient.

2. Ask the representative of the issuer to further explain: (1) the sales and settlement policies of the issuer to the main customers and the implementation of the relevant policies; the pricing model, price range, various discounts, discounts, membership and points policies of the issuer's film fares, the differences and reasons between pricing and actual income, the pricing policy differences between asset-linked and franchised cinemas, and the ownership of pricing power (2) the internal control procedures, revenue recognition conditions and cash income ratio of the issuer's sales business, and whether the sales business income matches the scale of the film projection business, whether the disclosure of relevant information and risk disclosure is sufficient; (3) the design and implementation of internal controls related to the recognition of advertising business revenue; whether there is a relationship, financial transactions or other interest arrangements between the issuer and the end customers of the advertising business. Please recommend the representative to explain the procedures, methods and proportions for verifying the authenticity and final sales of the issuer, and make comments on the verification.

3. Ask the representative of the issuer to further explain that the subordinate enterprises of Hengdian Holdings, the controlling shareholder of the issuer, have the business of film and television drama creation, production, film and television city, whether they overlap with the related business of the issuer, whether they belong to different links of the film industry, and whether they compete with the issuer. Whether it is in line with the established strategy of the company, whether it has commercial rationality, and whether there is a related party transaction between the issuer and Hengdian film distribution, whether it is in line with the company's established strategy, whether it has commercial rationality, and whether there is a related party transaction between the issuer and Hengdian film distribution. Please recommend the representative to express your verification opinion.

in view of the problem of gross profit margin, Hengdian Film and Television explained that "the company lays out third-and fourth-tier cities, and the market is just mature."

Hengdian Film and Television, the main income comes from cinema distribution income, film screening income, sales income and other income. As of June 30, 2017, the company has 310 opened cinemas with 1892 screens.

from January to June 2017, the company achieved revenue of 1.242 billion yuan, of which cinema box office revenue was 1.114 billion yuan, down 2% from the same period last year, ranking eighth among cinema chains in the country. In the first half of the year, after deducting non-recurring profits and losses, the net profit attributable to the shareholders of the parent company was 177 million yuan.

picture from Hengdian Film and Television prospectus

from Hengdian Film and Television prospectus, the company's gross profit margins in 2014, 2015, 2016 and 2017 from January to June were 22.62%, 27.67%, 23.93% and 23.51%, respectively. Among them, except for more than 27% in 2015, the company's gross profit margin has basically remained at around 23% in recent years.

in response, the company pointed out that the increase in gross profit margin in 2015 was due to the fact that the company's cinema investment focused on second-and third-tier cities and some key county-level cities, and that audience attendance was low in 2013 and before. at the same time, some new cinemas are in the market training period, so the box office revenue is poor.

"as the audience forms the habit of watching movies and sinks further, and the company's new cinema gradually enters a stable operation period, the company's box office revenue increases rapidly, while the costs and expenses such as employee salary, house rent and depreciation and amortization are relatively fixed. The proportion of film projection revenue continues to decline, and the gross profit margin of the company's film projection business increases."

compared with competitors such as Wanda Film, Hengdian Film and Television admitted that "the gross profit margin of comparable companies in the same industry is relatively stable and higher than that of companies."

for this The company's explanation is as follows:

< strong > < / strong >

from the prospectus, we can see that Hengdian's film and television revenue mainly comes from film screenings, sales, advertisements and cinema distribution. Among them, although the company's revenue mainly comes from the film projection business, it accounted for 78.75%, 86.58%, 81.29% and 80.24% of the revenue in 2014, 2015, 2016 and the first half of 2017, respectively.

but from the perspective of gross profit, the film projection business is the "least profitable business" of Hengdian Film and Television. According to the new third board online, the gross margin of the company's film projection business accounted for 25.3%, 50.79%, 34% and 29.34% respectively in 2014, 2015, 2016 and the first half of 2017, while the gross profit margin was only 7.27%, 16.92%, 10.01% and 8.6%, respectively.

these two figures are far below the sales business. From 2014 to the first half of 2017, the gross margin of the sales business of Hengdian Film and Television during the reporting period was 42.18%, 30.86%, 33.39% and 35.32% respectively, and the gross profit margin was as high as 69.87%, 72.19%, 73.81% and 73.96%, respectively.

this is not surprising. The "popcorn business" of cinema companies was first known to the outside world, thanks to Wanda Film, which launched on the gem in January 2015.

in fact, next, Hengdian Film and Television will "actively expand the derivatives business, so as to expand the revenue scale".

the Development Review Committee is also "used to" the "popcorn business" of cinema companies. For them, Hengdian Film and Television only needs to explain whether the company's "sales revenue matches the scale of the film projection business".

and from the data listed in the prospectus, the sales revenue of Hengdian Film and Television has maintained a steady growth with the layout of the company in recent years, without sharp abnormal fluctuations.

as for the issues concerned by the Development and Review Commission, such as ticket pricing, revenue from sales, and related transactions in advertising, Hengdian Film and Television has also explained them one by one in the prospectus, so I will not repeat them here.

< strong > sinking below the third-tier city, can Hengdian Film and Television become a first-class cinema company? < / strong >

Hengdian, known as "Hollywood in China", is the largest film production base in China and the largest in the world. Hengdian Holdings mentioned in the prospectus that the company can continuously enhance the brand influence by relying on the brand publicity effect of Hengdian holding film and television culture industry.

but although Hengdian's "brand" is popular, Hengdian Film and Television, which focuses on film projection, still lags far behind the first-class cinema line, regardless of its box office or market share, and this gap is actually still widening.

in 2016, China's film box office revenue increased by only 3.73% compared with the same period last year, the lowest growth rate in 10 years. The single-screen output of cinema chains also dropped to 1.11 million yuan in 2016 from 1.39 million yuan in 2015.

in this case, Hengdian Film and Television continues to adhere to the expansion route and bet on cities below the third tier. The company will raise 2.863 billion yuan through this IPO, of which 2.363 billion yuan will be used for cinema construction projects and 500 million yuan for supplementary liquidity. Hengdian Film and Television will continue to invest in 210 cinemas, and the number of cinemas is expected to reach 400 by the end of 2018.

and according to the existing data, compared with other first-class cinemas, the competitiveness of Hengdian Film and Television is still weak.

as of the end of June 2017, there were 48 cinemas nationwide. Among them, Wanda Film is the biggest one. The company achieved an operating income of 6.654 billion yuan from January to June 2017, an increase of 16% over the same period last year. By June 30, 2017, the company had opened 455 cinemas and increased the number of screens to 4000.

while Hengdian Movie and Television had 310 cinemas with 1892 screens in the first half of the year. Combined with the data at the end of last year, the gap between the two cinemas is getting wider and wider. The cinema gap alone increased from 59 to 145, and the screen gap widened from 1425 to 2108 yuan.

Hengdian Film and Television regards domestic cinema companies such as Wanda Film, Earth Cinema (837015), Lianhe Cinema, and China Film Xingmei as their main competitors, but from all aspects of data, Hengdian Film and Television still lags far behind these competitors.

Edit: mary