$FengHua Qiushi (810160.HK)$It is a music entertainment service provider that has been operating in China for over 10 years. It mainly focuses on awarding music copyright and music recording services, complemented by concert hosting and production and artist management. The company has always adopted a complementary business model and consists of three independent and self-reinforcing divisions, namely the granting of music copyright and recording, which the company regards as its main business segment; concert hosting and production, and artist management.

According to the prospectus, granting music copyright and recording is the company's main business, and most of the company's revenue comes from licensing music works. In terms of licensing and recording of music, the company has a diverse and growing music library, including homemade and purchased music works.

Fenghua Qiushi divides music works into singles, digital and physical albums, videos, and selected catalogs, and licenses them to digital streaming platforms, album production companies, marketing and advertising agencies, and other entertainment companies, such as film production companies. In return, the company receives revenue by collecting royalties and license fees from customers based on a fixed minimum guarantee amount; revenue sharing arrangements; and/or KPI revenue.

In addition, the company provides customers with customized music and video production services, such as the company's managed and external artists and short video platforms. The company earns revenue by charging fixed production fees.

In terms of artist management, the company's revenue mainly comes from providing services to customers, including digital streaming platforms, marketing and advertising companies, and commercial enterprise television broadcasters, which arrange for recording artists managed by the company to participate in commercial activities, advertising campaigns, and TV/online programs.

As far as the company's exclusive contracts with artists are concerned, the company manages its music and performing arts business services under an exclusive all-inclusive contract, while the company only manages its music business services under an exclusive music contract. The company manages and assists in their career development in the music and entertainment industry, including but not limited to music production, market positioning of artists, marketing strategies to maintain or increase their popularity, training, and performance evaluation. Generally speaking, the contract period between the company and the artist in charge of recording is not less than four years.

On the final implementation date, the company managed 11 musical artists and 10 trainee entertainers respectively, including Black Panther, Lu Han, Hao Yun and Dong Youlin.

According to the Insight Consulting Report, Fenghua Qiu has become a well-known music entertainment group in China, ranking fourth among more than 200 China-based music record companies in the Chinese music copyright market, with a market share of about 1.5% in 2020.

According to the Insight Consulting Report, in China, market participants (such as companies) that grant music copyright depend on a single or small number of top artists. This is a normal phenomenon in the industry. Feng Huaqiu believes that as the company pursues complementary business models and diversification strategies and expansion plans by finding and training new artists and increasing the exposure and popularity of active musicians, the degree of dependence on a number of artists is likely to decline in the future.

In fiscal year 2019, fiscal year 2020, and fiscal year 2021, the company's revenue was approximately 556.05 million, 70561 million yuan, and 81.858 million yuan respectively; the company's net profit was approximately RMB 18.88 million, 42.717 million, and RMB 33.251 million.

According to the prospectus, the company's revenue decreased by about 448,000 yuan from fiscal year 2018 to fiscal year 2019, mainly because the company did not host a large-scale concert for Mr. Lu Han, a well-known recording artist in fiscal year 2019; and the decline in commercial activities in which the company's active record artists participated in fiscal year 2019. Revenue increased by about 15 million yuan from fiscal year 2019 to fiscal year 2020, mainly due to the company entering into a new exclusive music cooperation agreement with client E in fiscal year 2020.

In terms of industry, the market size of China's music copyright industry increased from about RMB 2.2 billion in 2016 to about RMB 12 billion in 2020, with a compound annual growth rate of about 52.8%, mainly because the government strengthened copyright protection and the rise of China's digital streaming platforms became the main purchasers of copyright.

Driven by multiple music distribution channels and increasing demand for music copyright, the market size is expected to maintain a high growth rate and reach about RMB 37.7 billion in 2025, with a compound annual growth rate of about 25.7% from 2020.

With the end of the era of exclusive music copyright, copyright prices have returned to rationality, lowered the entry threshold for the music industry and encouraged innovation. For Fenghua Qiushi, who applied for listing in Hong Kong, it is important to find new breakthroughs in the future.