Huanrui Century's backdoor listing was conditionally approved and stable profits are the key to its success

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On July 21, Huanrui Century and Xingmei jointly received a notice from the China Securities Regulatory Commission that the company's issuance of shares to purchase Huanrui Century's assets and raising matching funds and related transactions were conditionally approved. So far, Huanrui Century successfully backdoor listing.

Xingmei United received a notice from the China Securities Regulatory Commission on July 21. After review by the 48th M & A Committee Working Meeting of the 2016 M & A Committee held by the M & A Review Committee of the Listed Companies of the China Securities Regulatory Commission on July 21, the company's issuance of shares to purchase assets and raising supporting funds and related transactions were conditionally approved.

On June 8, 2016, the company issued an announcement stating that it planned to issue shares to purchase 100% equity of Huanrui Century; at the same time, it raised matching funds of 1.53 billion yuan in non-public issuance of shares. The 100% equity of Huanrui Century is determined to be 3 billion yuan. Chen Yuan and Zhong Junyan injected Huanrui Century, which they controlled, into the listed company. Huanrui Century accounted for more than 100% of the listed company's total assets of 3.0837 million yuan at the end of 2014, constituting a backdoor listing.

Huanrui Century, which once failed in its IPO, attracted everyone's attention through its successful meeting, and the reasons for its previous failure have also become the focus of attention in the industry. A glimpse of the regulatory boundaries of the film and television industry in order to gain inspiration from them. Prior to this backdoor listing, Huanrui Century failed to restructure with Taiya in 2014. In the 2014 reorganization plan with Taiya, Huanrui Century's 100% equity was valued at 2.738 billion yuan.

The net profit attributable to shareholders of the parent company in the consolidated statements of Huanrui Century for 2014, 2015 and 2016 is not less than 175 million yuan, 227 million yuan and 295 million yuan respectively; The net profit attributable to owners of the parent company after deducting non-recurring gains and losses in the consolidated statements for 2014, 2015 and 2016 is not less than 160 million yuan, 206.58 million yuan and 270.71 million yuan respectively. Its net profit during the commitment period is a compound annual growth rate of 30%. The corresponding static PE in 2013 is 53.4 times (calculated as the profit disclosed in the 2014 transaction plan), and the corresponding dynamic PE in 2014 is 17.1 times.

Although in this transaction, the price of Huanrui Century's 100% equity of 3 billion yuan has increased slightly compared with 2.74 billion yuan in 2014. However, it can be seen that the PE and committed performance corresponding to the valuation have been significantly reduced. At the same time, the compound annual growth rate of net profit during the commitment period also dropped from 30% to 24%, and the growth rate of historical performance and committed performance also dropped from 241% to 40%.

In addition, in the 2014 reorganization plan with Taiya Co., Ltd., Huanrui Century promised that the company's 2014, 2015 and 2016 consolidated statements net profit attributable to owners of the parent company was 175 million yuan, 227 million yuan and 295 million yuan respectively. However, with the backdoor Xingmei alliance, Huanrui Century has a performance commitment of 241 million yuan in 2016, and its net profits in 2014 and 2015 are 51 million yuan and 171 million yuan, both lower than the 2014 plan commitment performance.

Compared with the failure of the last reorganization, in addition to differences in transaction plans, Huanrui Century's operating situation has further developed compared with two years ago.

In 2014, after the reorganization of Huanrui Century failed, although Yang Mi, Yang Yang and other artists lost their resources. However, with "fresh meat" such as Li Yifeng and Tang Yan, the company still attracts a large number of film and television audiences. In addition to the completion of a season of "Tomb Robber Notes", the follow-up development of super IPs such as "Zhu Xian" and "Kunlun Sea" has brought continued profit points to Huanrui Century.

Although Huanrui Century has been profitable, in 2013 and 2014, the net cash flow from the company's operating activities has been negative, but there is no actual cash inflow. In 2015, Huanrui Century's net cash flow from operating activities was 4,718.11, successfully achieving a net inflow of cash flow from operating activities.

Huanrui Century's inventory turnover rate also increased from 0.36 in 2013 to 0.53 in 2015. For companies in the film and television industry, the higher the inventory turnover rate, the stronger the company's ability to monetize TV dramas. The company's asset-liability ratio dropped from 45.30% to 29.18%, and the net assets per share attributable to shareholders of the parent company increased from 4.79 yuan to 8.64 yuan. The overall situation of the company has improved significantly compared with 2013. Some industry insiders believe that Huanrui Century has the conditions to attend the meeting, which is inseparable from good financial data.

This time, Huanrui Century has qualified passage stating that the pursuit of high valuations and high performance commitments will easily attract regulatory attention, and film and television companies might as well focus more on the creation of film and television works and IP layout.

Although Huanrui Century has forward-looking completed the layout of IPs such as "Tomb Robbing Notes","Zhu Xian", and "Kunlun", Huanrui Century is one step behind in the capital market. 2013 and 2014 were the periods when A-share listed companies began to explore market-based capital operations, and regulatory authorities began to encourage mergers and acquisitions. However, Huanrui Century missed the opportunity at that time.

Since the market heard in May that the China Securities Regulatory Commission has strengthened its supervision of cross-border mergers and acquisitions in emerging industries such as "media, games, and Internet finance", the media sector has always been in a whirlpool of doubts and doubts, which in turn has had a relatively negative impact on the overall valuation of the media sector. Zhongtai Securities believes that the smooth listing of Huanrui Century Curve has to a certain extent affirmed the regulatory authorities 'principle of "one discussion on one issue" on mergers, acquisitions, reorganizations and reductions in holdings, and has a strong positive effect on the entire media sector.

Issues such as the short development time of the film and television industry, rapid valuation growth, large differences between historical performance and committed performance, and the sustainability of profitability have always been key concerns of supervision. Analysts at securities institutions said that recent regulatory rules requireprofit stability,prevent arbitrage, and notexcessively high valuations. Regarding this successful meeting of Huanrui Century, some analysts and comments said that the road to film and television mergers and acquisitions is not blocked, but it is only necessary to pay attention to the boundaries of supervision and gain inspiration from the cases of passing the meeting and being rejected.

In recent years, a mass entrepreneurship boom has emerged, and national policies have also supported the development of small and medium-sized enterprises. Asset-light industries or target companies have become darlings of the capital market, creating many wealth myths.

Talking about the regulatory authorities '"one-on-one discussion" on mergers and acquisitions and reduction of holdings, Heli Chenguang Executive Vice President (COO) Weng Zhichao believes that asset-light target companies are quickly acquired by listed companies through mergers and acquisitions, making listed companies or secondary markets The bubble is getting bigger and bigger, which has also led to tighter supervision of listed companies by regulatory authorities. At the same time, such mergers and acquisitions are not conducive to the development of the entire M & A field, and may even destroy the good momentum cultivated over the years since 2007. Under this premise, it is reasonable and reasonable for the regulatory authorities to take control.

Weng Zhichao said that based on this, all many film and television companies can do is to operate their own companies well and make the company an important link in the film and television industry chain, rather than just a pure production company (that is, an investment company after taking off the cloak of professional terminology in the industry). He explained that all people in the film and television industry know that production is investment. As a pure investment company, the film and television drama works invested are the investment targets. Since it is a pure investment, there will be investment risks. In the industry, it is called "single risk." If your investment company has invested in many projects, can you be considered a VC or PE from a financial perspective? Should I obtain a license from the financial regulatory authority if I want to go public?

At the same time, if a film and television company only has a beautiful and resounding name and only participates in 10% or 5% of each film and television series, it does not have its own production team, marketing and publicity team, distribution team, theater team or other operating teams in various aspects of the industry chain, regulatory authorities will inevitably have doubts about the company's continued profitability and the stability of the company's profits. In recent years, new companies have sprung in regardless of the fact that the film and television industry is "quick to make money", which will also prompt regulatory authorities to determine that their real purpose of connecting with the capital market is to "cash out and leave", which will inevitably cause huge losses to small and medium shareholders and cause stock market shocks. In the current market environment, there are many cases where people only invest 5%, but dare to call their own company's work.

Weng Zhichao said that entrepreneurs who have become obsessed with profit from capital need to calm down and seriously run the company for the long term. Whether it is film and television production, film and television distribution, film and television marketing, film and television screening, film and television services, film and television derivative operations or any other link in the industrial chain, positive development can be truly integrated into the industrial chain and find your own position in it. Only by making precise and irreplaceable segments can it be possible to promote the company's healthy development through its integration with the capital market.

On the same day, Xingmei United also disclosed the company's semi-annual financial report forecast, and the company's net profit loss was significantly reduced compared with the same period last year. The announcement shows that the company achieved operating income of 6.19 million yuan from January to June 2016, and the average operating income growth rate of the comprehensive industry was 29.91%. The company's operating income in this quarter increased by 229.14% compared with the previous quarter; The net profit attributable to shareholders of listed companies was-160,000 yuan, a year-on-year increase of 90.69%, which was negative for the company's share price. The average net profit growth rate of the comprehensive industry was-39.50%. The company's net profit for this quarter decreased by 275.15% compared with the previous quarter.

Zhongtai Securities analyzed that the core competitiveness of the film and television industry lies in how to maximize the commercial value of IP in the entire industry chain. These include mining and incubating IP, and commercialization of IP in upstream and downstream, such as publicity channels, new product research and development, as well as surrounding industries,"movie games", artist brokerage, etc. Further improvement of the company's future valuation, further deepening of the entire industry chain and being at the forefront of model innovation are important directions for the company's future development.

Yien.com compiles and releases it based on public information, media reports and comments from analysts from Zhongtai Securities.

Editor: vian