Media and Entertainment Industry Looking at Growth Enterprise Market Stable Business Model Becomes Difficult

the China Securities Regulatory Commission released the interim measures for the Administration of initial Public offerings and listing on the growth Enterprise Market at 01:45 on its official website, saying that the measures will be formally implemented on May 1. The release of the gem, which has been brewing for 10 years, is somewhat sudden at such a time. Ye Tan, a well-known financial commentator, jokingly called it the midnight chicken crow of ldquo; Securities Regulatory Commission & Wang Ranze, CEO of rdquo;, Yikai Capital, joked on his blog that ldquo; announced the news on the day before April Fool's Day & rdquo;.

in March last year, the Securities Regulatory Commission announced the "interim measures for the Administration of initial Public offerings and listing on the growth Enterprise Market" & ldquo; draft & rdquo;. Although the discussion on the gem was quite hot at that time, and people in the industry predicted that the gem would be officially launched in August last year, the launch of the gem was shelved for a time due to the sudden change in the environment caused by the financial crisis. Huayi Brothers, which has been trying to list A shares in China, submitted its application for IPO in June 2008, when most industry insiders speculated that Huayi Brothers might be one of the first companies to land on the gem. After the gem ran aground, Wang Zhongjun, chairman of Huayi Brothers, said Huayi planned to list on the Shenzhen small and medium-sized board, but Huayi failed to complete its domestic listing plan in 2008 because the IPO channel was temporarily closed in the second half of last year. Hu Ming, vice president of Huayi Brothers Media Group, told Variety that Huayi's IPO application is still waiting in line.

gem promotes industrial upgrading

although the industry's prediction of the future of the gem is completely polarized, most people still hold a positive attitude towards the launch of the gem. The launch of the gem will first benefit all stakeholders in the relevant chain: thousands of small and medium-sized enterprises in China will get capital support through listing; entrepreneurs will get a return; venture capital and venture capital finally have an exit mechanism. In a more subtle way, the launch of gem will provide new market opportunities for intermediary service providers such as sponsor institutions and sales channels.

in terms of the general environment, the launch of the gem in the context of the economic crisis will further expand private investment and help to solve the financing problems of small and medium-sized enterprises. In the short term, it can expand domestic demand and stimulate employment; in the long run, the gem mainly serves high-tech, cultural and creative enterprises, which helps to promote industrial upgrading and promote the transformation of China's economic growth mode so as to promote innovative national construction.

IDG founding partner Xiong Xiaoge told the media at the first time of the gem launch that compared with last year, now is the best time to launch the gem, & ldquo; before the economic crisis is not necessarily a good time to push the gem, launch the gem in the capital market, do not bring other plates down, leaving a bad excuse. & rdquo; actually thinks that the gem will divert the main board and has been worrying some industry insiders and investors.

although due to the requirements of securities firms, Hu Ming said that it is inconvenient to disclose the relevant details of Huayi's listing, but for the gem itself, she said that it will play a great role in promoting small and medium-sized enterprises. & ldquo; China's small and medium-sized enterprises make a great contribution to the economy, but their ability to access social resources is generally weak. Gem helps to change the status quo. & rdquo; as far as Huayi's film and television entertainment industry is concerned, she said that not many companies will be able to meet the listing requirements in the next two or three years. & ldquo; for this fast-growing industry, we need to look at it from a 10-year or even 30-year perspective. & rdquo;

Hu Ming believes that there is no need to be too pessimistic about the impact of the economic environment. & there is a famous saying in the ldquo; capital circle, & lsquo; tide recedes before we know who is swimming naked & rsquo So the current environment is also good to some extent, because after the bubble burst, investors will be more rational and refocus on the fundamentals of the enterprise, such as business model, customer service, profitability, and so on. On the other hand, it also urges enterprises to further strengthen themselves. & rdquo;

threshold of gem

Article 10 of the measures clearly defines the threshold for enterprises listed on the gem, which is not much changed compared with the ldquo; opinion draft-rdquo; released last year. The "measures" set two sets of standards for the financial situation of issuers: they made profits in the last two years in a row, with a cumulative net profit of not less than 10 million yuan in the last two years, and continued growth; and the most recent year made profits, and the net profit was not less than 5 million yuan. The most recent year's operating income is not less than 50 million yuan, and the growth rate of operating income in the last two years is not less than 30%. The above two sets of standards must also meet four conditions, the net profit is calculated on the basis of which is lower before and after deducting non-recurring profits and losses, the net assets before the issue is not less than 20 million yuan, there is no uncompensated loss at the end of the most recent period, and the total share capital after the issue is not less than 30 million yuan.

compared with the main board, the threshold of gem is lower, but the sustained growth and growth rate of enterprises are required according to the characteristics of gem. Ye Tan believes that from a regulatory point of view, management is still trying to rely on financial data to select more mature enterprises, so as not to shake the foundation of the gem. She believes that this is the performance that management is still infatuated with its own administrative power & rdquo;. Hu Ming also believes that the current conditions of the gem should be the result of the regulatory authorities balancing the needs of all parties & ldquo; tends to be conservative, but also hopes that the gem will be more stable. & rdquo;

Wang ran said bluntly that it was problematic to set the threshold of the gem in this way. He cited large-scale online game development and operation enterprises as an example. If they have no revenue in the first and second years, but suddenly gain 100 million in revenue and 10 million yuan in profits in the third year, it is still impossible for enterprises like ldquo; to land on the gem according to the "measures". & rdquo; in fact, in high-growth enterprises, such cases are not uncommon, not only online game enterprises, some video websites and Internet companies with larger market share show higher growth, but the literal meaning of the provisions does not meet the listing requirements of the gem. Wang ran even pointed out that according to the current "method", enterprises that did not make a profit in the last year cannot be listed on the stock market, which is not in line with the original intention of setting up the gem.

Xiong Xiaoge further pointed out that the two-year net profit of ldquo; is 10 million, with an annual growth rate of more than 30%. If such rules apply to ldquo;, companies like Baidu, Sohu and Sina will never appear on the gem, which can only be regarded as an extension of the SME board. & rdquo; Xiong Xiaoge believes that China's gem & ldquo; is genuine & rdquo; should also follow the successful experience of NASDAQ of the United States, which has proved that no limits on corporate profits can help the company develop and is important for new enterprises.

gem accelerates industry consolidation

take Huayi Brothers as an example, its financial situation not only meets the conditions of the gem, but even meets the listing conditions of the main board. At the beginning of this year, Wang Zhongjun told Variety that Huayi Brothers' after-tax net profit in 2008 reached more than US $10 million, a growth rate of more than 50%. A comprehensive survey of Huayi's income scale and profits in the past few years shows that Huayi Brothers has grown by more than 50% for four consecutive years. Although Hu Ming admitted that Huayi Brothers fully met the conditions for listing in terms of financial data, she also said that it was difficult to list on the main board because the company was still relatively small and the profit model was relatively new. So last year, Wang Zhongjun also said publicly that the more mature small and medium-sized board was the first choice of Huayi Brothers.

the answer to Huayi's listing target Hu Ming is quite good & ldquo; official & rdquo;:“ Huayi is already in line, and we are all red-hearted and prepared for whether or not to go & where to go to rsquo;, depends on the opinions of the competent authorities and securities firms. & rdquo;

& ldquo; from the perspective of an enterprise, I think Huayi should choose the motherboard, because the latter is a more mature market after all. & rdquo; Wang ran told Variety that the only thing that allows Huayi to choose the gem is that the latter can have more pricing space relative to the main board and the small and medium-sized board. & ldquo;, with the characteristics of the gem, should be priced entirely by the market. If Huayi uses the same pricing rules as the main board and the small and medium-sized board, such as a price-to-earnings ratio of up to 30 times earnings, Huayi does not need to choose the gem at all. & rdquo;

the price-to-earnings ratio determines the listing price of enterprises. Although Wang Zhongjun did not disclose the specific figures of Huayi's 2008 after-tax profit, & ldquo; more than 10 million US dollars & rdquo; if conservatively calculated at 100 million yuan, according to the price-to-earnings ratio of up to 30 times earnings on the main board, its listed market capitalization will reach 3 billion yuan, and if the proportion of outstanding shares after issue is 25%, it can raise 750 million yuan. But this is the best case, listed on the main board or small and medium-sized board, the regulatory inspection of Huayi Brothers may be far more cautious than ordinary enterprises, and investors generally lack relevant industry knowledge. As of the end of last year, the total market value of the cultural and media sector in the A-share market was 150 billion yuan, accounting for less than 5% of the total market capitalization of A-shares, which is not very attractive to fund managers; on the other hand, the profit model of film and television entertainment companies is relatively new. in particular, the film investment risk is high, the investment amount is large and the cycle is relatively long, it is difficult for ordinary investors to have a correct understanding of this industry. Take Huayi's original target small and medium-sized enterprise board as an example, the average amount of financing of its enterprise IPO is 300 million yuan, and there is no cultural enterprise at present, so for Huayi, the financing quota of choosing motherboard or small and medium-sized board is likely to be reduced.

therefore, if the gem, which is aimed at cultivating new high-tech and high-growth enterprises, can give more space in enterprise pricing, it is still quite attractive to enterprises like Huayi Brothers. At present, there are still different opinions about the price-to-earnings ratio of gem in the industry. although there is a high demand for free pricing by the market, there is also a spread of the saying that it is capped by the competent department-ldquo; & rdquo;. In this regard, Chen Dongzheng, chairman of the Shenzhen Stock Exchange, once affirmed to the media that the price-to-earnings ratio of the gem will certainly be 30 times higher than that of the main board. But it is still unknown how big the ldquo; is & how big the rdquo; is. If you take the United States as an example, the average price-to-earnings ratio of the Nasdaq is generally about 3.5 times that of the motherboard.

& ldquo; conversely, if I were a manager of the gem, I would want to attract companies like Huayi Brothers to go public. & rdquo; Wang ran said that the gem will be launched soon and the quality of the first batch of enterprises on the gem will directly affect the future development of investors and the gem. & ldquo; whether these enterprises have high growth and whether they are leaders in their respective fields, but at least I am not very optimistic about the list of enterprises that have landed on the gem. Whether rdquo; has a good enterprise and gem has a future in Wang ran's view is the problem of & ldquo; raw egg, egg raw chicken & rdquo;, & ldquo; I hope that gem will not become a distribution center for those enterprises that can not be on the main board, only in this way can gem give birth to really great enterprises. & rdquo;

how relevant is the gem to the film and television entertainment industry?

Wang Changtian, chairman of Light Media, which is also preparing for listing, told Variety that the threshold of the gem is not high. & ldquo; but as far as the private media entertainment industry is concerned, the bigger difficulty lies in how to ensure the stability and sustained growth of profits. & rdquo; these two difficulties are determined by the business model of most private film and television entertainment companies & ldquo; most companies are still project operation mode, many projects, high income, stability and sustainable growth requirements can not be guaranteed. & rdquo; in terms of light itself, Wang Changtian makes an interesting analogy: & ldquo; 's stable business model is like a hen that can only lay eggs every day. Without hens, the project can only & lsquo; grab eggs & rsquo;, you may get a good egg today, but tomorrow you may get & lsquo; villain & rsquo;. & rdquo;

Wang ran also believes that with regard to the film and television entertainment industry, the launch and even listing of the gem is still relatively distant. & it is very difficult for companies in the film and television industry only to do large-scale listing and to talk about listing, and it is only possible to develop into an integrated group. & rdquo; he believes that at present, only a few companies in this field, such as Poly Boehner and Huayi Brothers, have a clear business model and group structure, and their scale and profitability have reached the threshold of listing.

but the launch of gem still provides more possibilities for excellent private film and television companies. Before the launch of the gem, Huayi Brothers' first choice was domestic listing. Hu Ming said that this is not only because of the listing cost, but mainly because Huayi is optimistic about A-shares and the Chinese economy in the long run. Huayi's main business and main markets are also in China. On the other hand, due to the joint formulation of the Ministry of Commerce and other six ministries in 2007-ldquo; No. 10 of 2006-rdquo; "regulations on mergers and acquisitions of domestic Enterprises by Foreign investors"-mdash;— almost blocked the overseas listing of private companies & ldquo; red chip model & rdquo;. Even Wang Changtian, who has gone through the curve of overseas listing, admits that companies like Light actually have better brand and public awareness at home, but before, it was difficult to meet the size and performance requirements of the motherboard. so we have to focus on overseas. & ldquo; now, the main board and gem are under our consideration, internal employee stock ownership and shareholding reform are under way, and a small number of investors will enter in the near future to improve the shareholder structure. However, at present, the focus of the light is to further improve the business model and strive for a big increase in the company's revenue scale to match the financing scale of the future listing. & rdquo; Wang Changtian said that Ray is expected to apply by the end of the year and listing should be in 2010; on the other hand, he believes that due to the improvement of the financing environment in the media and entertainment industry, there is no urgent need for companies to go public.

& A series of policies issued by ldquo; authorities, especially Beijing, to support cultural and creative industries have greatly benefited private media and entertainment companies, such as bank loans, interest discounts, and a series of financial supporting measures being improved by the government, such as guarantee funds and guidance funds, which will give us great support in the future. & rdquo; Wang Changtian said that listing is to seek greater development, but the premise is that the enterprise itself can live very well, & ldquo; this is the bottom line of a good enterprise. & rdquo;

Hu Ming also said that the greatest significance of becoming a public company to Huayi is to further optimize the business structure and shareholder structure of the enterprise. & ldquo;, at least as a public company, will greatly reduce the chance of making big mistakes. & rdquo; in terms of financing, she also believes that the smooth flow of bank loans has also met a considerable part of Huayi's capital needs. Not long ago, Huayi received a packaged loan of 120 million yuan from the Beijing Branch of the Industrial and Commercial Bank of China with four films such as "the Wind", "chasing the Shadow" and "the Tangshan earthquake". This is also the first time that the world's most valuable commercial bank has set foot in a project loan for film and television content products. Wang Daiyin, deputy general manager of the second part of the Business Department of the Beijing Branch of the Industrial and Commercial Bank of China, told Variety that in the future, ICBC will regard cultural and creative industries as the focus of credit development, not only content products in the film and television industry, but also contact with distribution and cinema enterprises to fully support the development of the industrial chain.

Although there are only a handful of companies that can meet the listing requirements, Wang Changtian believes that the launch of gem will accelerate the scale and centralization of media and entertainment companies. & ldquo At present, there are too many companies employed in this industry, the good and the bad are intermingled, most of them are at the same level, but there must be dozens or even several enterprises that can stay in the future, and the launch of the gem will accelerate this process. more integration and acquisitions will also emerge. & rdquo;