Tianshen Entertainment's goodwill surges, betting on future targets entering a period of decline, and its valuation surges

Recently, Tianshen Entertainment released a revised acquisition plan to acquire 93.54% equity of Fantasy Yueyou and 96.36% equity of Herun Media for 4.412 billion yuan. This acquisition will be made by issuing shares and paying cash. It is understood that in the past year, Tianshen Entertainment has successively acquired four game companies, including Fun and Fun. Some analysts pointed out that this kind of fierce acquisition of super premium game companies is actually a gamble on the future.

Recently, Tianshen Entertainment released a revised acquisition plan to acquire 93.54% equity of Fantasy Yueyou and 96.36% equity of Herun Media for 4.412 billion yuan. This acquisition will be made by issuing shares and paying cash. It is understood that in the past year, Tianshen Entertainment has successively acquired four game companies, including Fun and Fun. Some analysts pointed out that this kind of fierce acquisition of super premium game companies is actually a gamble on the future.

It is worth noting that Fantasia Yueyou, which was established in November 2011 with a registered capital of only 1 million yuan, has experienced three increases from July to December 2015, with a valuation ranging from 2.4 billion yuan to 3.9 billion yuan.

In addition, after the completion of this transaction, it is expected that the total goodwill of Tianshen Entertainment will reach 7.786 billion yuan. Enterprises need to conduct impairment tests on goodwill every year. If the acquisition target does not meet the performance standards, the impairment needs to be included in the profit and loss of the year, resulting in a significant decline in performance. Once the acquisition target fails to fulfill its performance commitments, Tianshen Entertainment will face a huge risk of impairment of goodwill.

In addition, the Fantasy Yueyou "home" game "Divine Comedy" accounted for 90.05% of the Fantasy Yueyou game business revenue in 2015. But the game's magic power to attract users is actually slowly fading. Its operating flow has dropped by approximately $3 million from its peak in 2014. The analysis believes that there are no particularly eye-catching products in terms of Tianshen Entertainment's own products or the product types of the company it acquired. Game companies must have good game products to drive good growth in the entire company's revenue and performance.

In response, the reporter sent an interview email to Tianshen Entertainment. As of press time, no reply had been received.

The underlying valuation has increased by 1.5 billion yuan in half a year

and the product has declined. According to reports, Tianshen Entertainment recently announced a revised acquisition plan. With a total consideration of 4.412 billion yuan, it acquired the game company Fantasia Yueyou 93.54% stake and the film and television company Herun Media 96.36% stake.

In the past year, Tianshen Entertainment has successively acquired four game companies, including Fun Fun. The valuation premium of the four companies is at least 8 times and at most 27 times. Some analysts pointed out that this kind of fierce acquisition of super premium game companies is actually a gamble on the future.

It is worth noting that among the acquisition targets, Fantasy Yueyou's valuation has increased by 1.5 billion yuan in six months. The company was established in November 2011 with a registered capital of only 1 million yuan. From July to December 2015, the valuation experienced three increases, and the valuation soared from 2.4 billion yuan to 3.9 billion yuan.

According to reports, the revised draft of the acquisition draft shows that as of the end of 2015, Fantasy Yueyu had as many as 35 domestic web games and mobile online games. Fantasy Yueyou's overseas game publishing business seems to be blooming everywhere, but there seems to be only one product that "results", which is the core game product "Divine Comedy" developed by Shenzhen Seventh Avenue Technology Co., Ltd.

In 2014 and 2015,"Divine Comedy" accounted for 95.65% and 90.05% of the revenue of the Fantasy Joy Games business respectively.

However, the magic power of "Divine Comedy" to attract users is actually slowly fading. The overall number of new users showed a downward trend, from 2.1937 million in January 2014 to 1.1475 million in December 2015; the average monthly active users and the average monthly paying users of this game have both declined, of which the average monthly paying number in 2015 was 66071, 21644 fewer than the 87715 in 2014, a drop of 25%.

Tianshen Entertainment admitted that the overall operation time of "Divine Comedy" has exceeded 5 years and has entered the second half of its life cycle. In 2015, the operating flow of "Divine Comedy" dropped by approximately US$3 million from its peak in 2014.

However, Tianshen Entertainment does not seem to have a great sense of crisis about the future of "Divine Comedy" and Fantasy Joy Tour. It believes that "Divine Comedy" is a well-made S-class game and its overall life cycle can still last for a long period of time."Divine Comedy" The proportion of paying users among retained users has increased, and loyal users have a higher willingness to pay. Therefore, the ARPPU value of the game will increase, offsetting the negative impact of the decline in the number of newly registered users.

Impairment risk of goodwill

It is reported that as of the end of 2015, the book balance of Tianshen Entertainment's goodwill was 3.664 billion yuan. After the transaction is completed, the company is expected to continue to recognize goodwill of 4.122 billion yuan. In other words, the total goodwill of Tianshen Entertainment will reach 7.786 billion yuan by then, accounting for 64.79% of Tianshen Entertainment's total assets after the transaction and 82.47% of its net assets.

Enterprises need to conduct impairment testing on goodwill every year. If the acquisition target does not meet the performance standards, the impairment needs to be included in the profit and loss of the year, resulting in a significant decline in performance. Once the acquisition target fails to fulfill its performance commitments, Tianshen Entertainment will face a huge risk of impairment of goodwill.

Issues such as high performance commitments on underlying assets and huge goodwill caused by high-premium acquisitions continue to receive the focus of regulatory attention. According to reports, the Shenzhen Stock Exchange issued an inquiry letter to Tenjin Entertainment on June 16.

The Shenzhen Stock Exchange pointed out in the inquiry letter that as of the end of 2015, the book balance of goodwill on Tianshen Entertainment's asset sheet had reached 3.664 billion yuan, and after the completion of this transaction, the company is expected to continue to recognize goodwill of 4.122 billion yuan. Therefore, the exchange required Tianshen Entertainment to provide additional disclosure of the proportion of goodwill to the company's total assets and net assets after the completion of the reorganization, and explain whether there is a large risk of impairment of goodwill and the company plans to take countermeasures.

Tianshen Entertainment said in its reply,"After the completion of this reorganization, the company's total goodwill was nearly 7.787 billion yuan, accounting for 64.79% of the total assets of the pro forma consolidated and 82.47% of the net assets of the pro forma consolidated." As of the end of 2015, Tianshen Entertainment's goodwill was valued at 3.664 billion yuan.

In addition, in order to deal with the risk of goodwill impairment, Tianshen Entertainment stated that it will strengthen internal integration, strengthen integration of the acquired company in terms of internal management, corporate culture, employee benefits, team building, etc., and strictly implement performance compensation measures.

Tenjin Entertainment said that a number of heavyweight games planned by Fantasy Games in 2016 will be launched, while online games such as "Naruto" will explode, and the performance commitments are reasonable.

There are doubts as to the authenticity of the performance commitments of the two subsidiaries

. According to reports, Tianshen Entertainment was renamed after the merger and acquisition of the original Kemian Wood Industry. Kemian Wood, which has transformed into an "online game stock", once again announced a major asset reorganization plan in March 2015. It plans to acquire a 95% stake in Fun Fun and a 100% stake in Leishang Technology, AvazuInc and Shanghai Maicheng by issuing shares and paying cash. A series of performance bets and questions surrounding mergers and acquisitions have also unfolded.

The total price of the assets placed by Tianshen Entertainment at the time of backdoor borrowing was 2.45 billion yuan, which was more than 2.15 billion yuan higher than the book value of 300 million yuan, and the value-added rate reached 725%.

After that, Tianshen Entertainment acquired interesting, Leishang Technology and Avazu INC. Both bring such high premiums and corresponding performance commitments.

The original performance commitment showed that the interesting and interesting consolidated statements from 2014 to 2016 deducted non-net profits were no less than 41.5 million yuan, 54.75 million yuan and 67.6875 million yuan respectively; Lei Shang Technology's audited non-net profits in 2015, 2016 and 2017 were no less than 63 million yuan, 78.75 million yuan and 98.44 million yuan respectively.

However, Tianshen Entertainment's 2015 annual report shows that its interesting net profit in 2015 was only 19.6099 million yuan, while Leishang Technology's was only 30.409 million yuan, which is far from the promised 54.75 million yuan and 63 million yuan. However, in the annual report, Tianshen Entertainment still disclosed that all companies have completed performance gambling.

Between the interesting actual net profit of 19.6099 million yuan and the committed non-net profit of 54.75 million yuan, what exactly does the profit gap of 35.1401 million yuan consist of? By the same token, where will we make up for the 32.591 million yuan gap in Leishang Technology's 2015 performance?

The above questions have led to doubts about the authenticity of the performance commitments of the two subsidiaries of Tianshen Entertainment.

Multiple reductions

Since April 2015, Tianshen Entertainment has been reduced many times, including the chairman and second largest shareholder of Tianshen Entertainment.

According to reports, Enlight Media announced on the evening of July 22, 2016 that the company's board of directors reviewed and approved the "Proposal on the Disposal of Available-for-Sale Financial Assets", agreeing that the company would sell its shares in Tianshen Entertainment through block transactions, and authorized the operation management The management appoints a person to be responsible for specific operational matters. According to the announcement, the company reduced its holdings of a total of 2,000,000 shares through block transactions from July 20 to 21, 2016, accounting for 0.68% of the total share capital of Tianshen Entertainment.

After this reduction, the company holds 13,954,766 shares of Tenshen Entertainment and Enlight Pictures holds 3,235,718 shares. Enlight Media and Enlight Pictures are acting in concert. After the reduction, they hold a total of 17,190,484 shares of Tenshen Entertainment, accounting for 5.89% of its total share capital.

According to reports, on the evening of April 1, 2016, Tianshen Entertainment issued an announcement stating that the company's shareholders holding more than 5% of the shares are the new limited company Newest Wise Limited (a new company), which plans to reduce the holdings by no more than 13.25 million shares, that is, no more than 4.54% of the company's total share capital, through centralized bidding, bulk transactions, etc. Tianshen Entertainment's 2015 annual report shows that Wei Xin is the second largest shareholder and largest tradable shareholder of Tianshen Entertainment.

On April 29, 2015, less than a month after Tianshen Entertainment changed its name, it issued an announcement stating that it had recently received notices from the company's directors and executives Zhu Ye and Shi Botao that they had passed block transactions on April 27 and 28 respectively. A total of 1.5973 million shares were reduced, accounting for 0.71% of the company's total share capital. Among them, Zhu Ye reduced his holdings of 965,500 shares and Shi Botao reduced his holdings of 631,800 shares. The average transaction price was 90 yuan/share, and cashed in 86.895 million yuan and 56.862 million yuan respectively.

Tianshen Entertainment, formerly known as Kemian Wood, borrowed 100% equity of Tianshen Interactive from Kemian Wood for a price of 2.451 billion yuan, with a value-added rate of 725.6%. After the completion of the implementation of major asset reorganization, Kemian Wood changed its name to Tianshen Entertainment on April 2 this year.

Editor: yvette