Shanghai Film Co., Ltd. went public on the 5th and raised 908 million yuan to upgrade and renovate theater construction

Shanghai Film Co., Ltd. will be listed on the Shanghai Stock Exchange on August 5, 2016. The planned public offering will not exceed 93.5 million shares, accounting for 25.03% of the company's total share capital after issuance. This IPO plans to raise 908 million yuan, mainly used for the construction and upgrading of cinemas, the construction of information systems and network platforms, and the replenishment of the company's working capital.

Lead:Shanghai Film Co., Ltd.(hereinafter referred to as "Shanghai Film Co., Ltd.") will be listed on the Shanghai Stock Exchange on August 5, 2016. The planned public offering will not exceed 93.5 million shares, accounting for the company's total share capital after issuance. 25.03% of the total. This IPO plans to raise 908 million yuan, mainly used for the construction and upgrading of cinemas, the construction of information systems and network platforms, and the replenishment of the company's working capital.

According to reports, Shanghai Film Co., Ltd. will use more than 80% of the funds raised for investment and construction of cinemas. Obviously, they will continue to bet on cinemas. However, the investment environment for cinemas is no longer the same as before. In 2013, the number of screens nationwide was 18,200, a year-on-year increase of 38.7%. However, the box office growth was only 30.18%. That is to say, the increase in the number of screens significantly exceeded the box office growth, and the output of single screens was declining.

It is reported that Shanghai Film Group has a shareholding ratio of 95.52%, and has absolute control over Shanghai Film Group. Among the 10 directors, supervisors and senior members of Shanghai Film Group, 7 senior executives work in the controlling shareholder Shanghai Film Group or companies controlled by Shanghai Film Group. 70% of senior executives come from controlling shareholders and affiliated companies, which makes market participants have to question their independence.

In addition, according to the prospectus, in 2012, 2013 and 2014, the comprehensive gross profit margin of Shanghai Film Co., Ltd. was 40.49%, 39.09% and 37.45% respectively, decreasing year by year. Accounts receivable were 103.3234 million yuan, 103.0596 million yuan and 176.5058 million yuan respectively, increasing year by year.

The reporter sent an interview letter to the board office of Shanghai Film Co., Ltd. on the above issues, but no reply was received as of press time.

Relying on Shanghai Film Group to raise 80% of the funds for theater construction

, Shanghai Film Group is backed by Shanghai Film Group. Due to its state-owned background, it was once called the "PetroChina" of the film industry. Shanghai Film Group's listing began in 2012. In July of that year, Shanghai Film Company was formally established. Shanghai Film Group and Jingwen Investment, wholly owned by Shanghai City State-owned Assets Supervision and Administration Commission, held 95.52% and 4.48% respectively. At that time, industry rumors said that Shanghai Film would become "the first state-owned film stock in China."

Shanghai Film Group was born out of the Shanghai Film Studio established in November 1949, which was once one of the three major film bases in China. After decades of development, Shanghai Film Group has a production system for multiple films such as feature films, translated films, documentaries, art films, and TV series. The industrial chain involves film production, distribution, theaters, technology, and shooting bases., marketing, media communication and other links, the group also has hotels, real estate and other industries.

At the end of 2013, Shanghai Film Group had a total of 228 affiliated theaters, ranking second among urban theaters in the country in box office revenue, with a total of 1.88 billion yuan. In terms of distribution, Shanghai Film Corporation is the first company in the country to engage in market-oriented film distribution business and one of the companies with the largest cumulative number of films released. In 2013, the box office revenue of films participating in distribution reached 1.096 billion yuan.

In this context, Shanghai Film Group is known as the "giant" of China's film industry and the "PetroChina of the film industry."

The listing of Shanghai Film Group is only the first step in the overall listing of Shanghai Film Group. Due to unstable profits, the group's core film production asset, Shanghai Film Studio, was not included in the listing.

The prospectus shows that Shanghai Film Co., Ltd.'s main business is film distribution and screening business, which specifically includes film distribution and copyright sales, theater operations, and theater investment, development and operation business. Among them, the income from film distribution and theater operations belongs to film distribution income, and the income from theater operations belongs to film screening income.

Shanghai Film Co., Ltd. plans to publicly issue no more than 93.5 million shares and raise funds of 908 million yuan, mainly used for the construction and upgrading of cinemas, the construction of information systems and network platforms, and the replenishment of the company's working capital, of which 80% of the raised funds will be used for the construction and upgrading of cinemas.

There are multiple continuing related party transactions with affiliated companies

. The CSRC has raised the following questions about Shanghai Film Co., Ltd. in the "Feedback Opinions on the Application Documents for the Initial Public Offering of Shanghai Film Co., Ltd."(hereinafter referred to as the "Feedback Opinions"):

According to the prospectus, during the reporting period, the company had multiple continuing related party transactions with Shanghai Film Group and its affiliated companies, the details are as follows: (1) The issuer collected film revenue from Shanghai Longzhimeng Studios and other affiliated companies;(2) The issuer provided distribution agency services and charged agency fees to Shanghai Film Group, Shanghai Film Factory and other related parties;(3) The issuer leases real estate from Shanghai Film Art Development Co., Ltd., Shanghai Film Property and other related parties for office or theater operations;(4) The issuer has signed a license contract with Shanghai Film Group, the Oriental Film Channel affiliated to Shanghai Film Factory and Shanghai Film Audiovisual Publishing House on the TV broadcast rights of some films to collect copyright income.

Ask the sponsor institution and the issuer's lawyers to check the explanation: (1) By comparing with unrelated third parties, explain the issuer's pricing of collecting film sub-account income from affiliated companies, providing distribution agency services, leasing relevant properties, and collecting copyright fees based on TV broadcasting rights. Fairness, and explain the use of the relevant leased properties, the reasons why they have not been invested in the issuer, and whether they have adversely affected the integrity of the issuer's assets;(2) Request the recommendation institution and the issuer's lawyer to issue verification opinions on whether the above situation has caused significant dependence on the controlling shareholder and has adverse effects on the issuer's independence and asset integrity.

According to the prospectus, some employees of the issuer have not paid social insurance and housing provident fund. Please check and explain the number of people who have paid various social insurances and housing provident funds of the issuer and their payment ratios, the number of people who have not paid various social insurances and housing provident funds, and their proportion to the number of all employees of the issuer, and the reasons for non-payment; The recommendation institution and the issuer's lawyer are requested to express verification opinions on whether the above situation complies with the provisions of relevant laws and regulations, and the recommendation institution is requested to analyze and explain whether the issuer has paid social insurance and provident fund in full and the impact on operating results if paid in full.

On December 30, 2015, the 217th IEC meeting of the Main Board Issuance Review Committee of the China Securities Regulatory Commission was held. According to the "Announcement on the Review Results of the 217th Meeting of the Main Board Issuance Review Committee in 2015", the Issuance Supervision Department conducted the following inquiries on Shanghai Film Co., Ltd.:

Please ask the issuer's representative to explain the sales situation of the movie "Magic" and further explain whether it is an important way to sell movie tickets, whether there are similar situations in the sales of other movie tickets, and the reasons why the ticket prices for group purchases involved in the movie "Magic" were not fully recovered until July 28, 2015. The recommendation representative is requested to further explain the verification process, conclusions and basis for the issuer's reporting of inflated box office revenue and inflated net profit for the year.

According to public information, the movie "Magic" will be released on September 30, 2013.

It

is reported that Shanghai Film Corporation successfully broke through due to its early theater investment and construction. After listing, Shanghai Film Corporation will use more than 80% of the funds raised for investment and construction in theaters. Obviously, it will continue to bet on theaters. However, at this time, the theater investment environment has changed.

According to data from the State Administration of Radio, Film and Television, in 2013, the number of screens nationwide was 18,200, a year-on-year increase of 38.7%. However, the box office growth was only 30.18%. That is to say, the increase in the number of screens significantly exceeded the box office growth, and the output of single screens is declining. Huayi Brothers also invested in cinemas, but soon discovered that the return on investment period was long and the competition was too fierce. After just one year, they stopped investing. Huayi Chairman Wang Zhongjun also publicly complained that the current cinema investment environment was too poor.

However, Shanghai Film Group is still optimistic about this field, because in their view, there is still a lot of room for growth in the movie consumer market in China. In 2012, the average person in the United States watched movies 4 times a year, while in China only 0.65 times. The screen density is not saturated. In 2012, the number of screens per one million people in China was 18.43, compared with 127.05 in the United States.

Moreover, Zheng Ping said,"In the past, Shanghai Film Group mainly focused on franchising theaters, and there were not many self-operated ones. This led to revenue expansion being restricted by box office, and other revenue channels such as advertising and sales were not easy to do. So it makes sense to strengthen self-construction."

"Cinema is an asset-heavy business. It will be very difficult for new theaters to attract large numbers of people in the early stage, so they often have to experience a relatively long loss period, which will seriously drag down the financial report. It is difficult for film and television companies with light assets to get involved in this field." The aforementioned brokerage researcher said that the market space for cinemas does still exist, so Shanghai Film Group must first raise funds and occupy a position in third-and fourth-tier cities. The problem with this kind of investment is that the early profits are low and may take three to five years to cultivate.

The independence of 70% of senior executives serving as controlling shareholders has been questioned

. According to reports, the prospectus shows that Shanghai Film Co., Ltd.'s main business is film distribution, screening management, movie theater lines and movie theater investment and asset management. The Shanghai Film Co., Ltd. that launched the IPO is a state-owned enterprise to the letter. The only two shareholders, Shanghai Film Group and Jingwen Investment, hold 95.52% and 4.48% respectively, and both are wholly-owned subsidiaries of Shanghai City Assets Supervision and Administration Commission.

It is precisely because its shareholders are all state-owned enterprises, and the controlling shareholder Shanghai Film Group has a shareholding ratio of 95.52%, which has absolute control. The reporter found that among the 10 board members of Shanghai Film Group, 7 senior executives work in the controlling shareholder Shanghai Film Group or companies controlled by Shanghai Film Group.

Ren Zhonglun, currently chairman of Shanghai Film Co., Ltd., serves as the chairman of several units including Shanghai Film Group, Shanghai Film Factory, Shanghai Film Technology Factory Co., Ltd., the controlling shareholder; Wu Xiaoming serves as the vice president of Shanghai Film Group; Director Tang Xinhua serves as the office of Shanghai Film Group; Director Ge Shumin serves as the director and general manager of Yongle Co., Ltd. controlled by Shanghai Film Group; Secretary Zhang Hui serves as a director of Yongle Co., Ltd. controlled by Shanghai Film Group; Chairman of the Board of Supervisors Cheng Jianjun Chairman of the Supervisory Board of Yongle Co., Ltd.; Supervisor Hu Jun is the director of the Audit and Inspection Department of Shanghai Film Group and the supervisor of Yongle Co., Ltd.

70% of senior executives come from controlling shareholders and affiliated companies, which makes market participants have to question their independence.

Industry insiders said that although Shanghai Film Group has established a series of rules to protect the interests of small and medium shareholders, Shanghai Film Group, which holds more than 95% of the shares, may still exert pressure on major matters such as development strategies, capital expenditure, personnel appointments and removals by exercising voting rights. There is a risk of using its control position to infringe on the interests of small and medium shareholders.

Gross profit margin is decreasing year by year. Accounts receivable are increasing

year by year. According to the prospectus, in 2012, 2013 and 2014, the comprehensive gross profit margin of Shanghai Film Co., Ltd. was 40.49%, 39.09% and 37.45% respectively. In 2013 and 2014, the comprehensive gross profit margin of Shanghai Film Co., Ltd. decreased by 1.40 and 1.64 percentage points respectively compared with the previous year, mainly due to the continued decline in the gross profit margin of the film screening business. During the reporting period, the gross profit margin of film screenings decreased year by year, to 27.29%, 22.92% and 18.96%, respectively.

The China Securities Regulatory Commission pointed out in the "Feedback Opinion": According to the prospectus, the gross profit margin of the issuer's screening business has decreased year by year; the distribution business includes film distribution and theater distribution business; since 2013, the issuer has uniformly acted as the agent for the advertising business of all its cinemas., the gross profit contribution rate has increased by 12 percentage points. Please supplement the analysis and disclosure in the "Management Discussion and Analysis" section of the prospectus: (1) Changes in the income and gross profit margin of film distribution and theater distribution during the reporting period;(2) The reason why the income from distribution business decreased by 9% despite the 14% increase in box office revenue in 2013;(3) The proportion and changes of the income from the main links of film distribution, theater distribution, and theater screening in the box office;(4) The approximate range of rentals of theaters controlled by the issuer and changes during the reporting period;(5) The term of the issuer's main advertising cooperation agreement, an analysis of the cost structure of the advertising business, and the impact of changes in the advertising business model of each theater affiliated to the unified agency on revenue and cost factors in 2013.

According to the prospectus, in 2012, 2013 and 2014, accounts receivable were 103.3234 million yuan, 103.0596 million yuan and 176.5058 million yuan respectively.

The China Securities Regulatory Commission pointed out in its "Feedback": The prospectus shows that the balance of issuers 'receivables at the end of each reporting period has increased year by year, and the scale of accounts receivable has increased year by year in 1-2 years. Please supplement the analysis and disclosure in the "Management Discussion and Analysis" section of the prospectus: (1) the top five debtors of accounts receivable and the balance and changes of accounts receivable at the end of each reporting period;(2) the corresponding customers and main contents of newly added accounts receivable in each period, and the main debtors of accounts receivable for 1-2 years;(3) the changes in the write-off amount of accounts receivable, the accrual amount of bad debt reserves, and the reversal amount during the reporting period;(4) Bad debt reserves and accrual ratio confirmed based on age.

Editor: yvette