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On November 8, 2016, Gongda Electric announced that it planned to issue 56.61 million shares to the counterparty at 13.92 yuan per share and pay 1.1 billion yuan in cash to acquire all shares of Lehua Culture at a price of 1.89 billion yuan, and announced the resumption of trading on November 9. In this regard, our comments are as follows:
Comments:
The adjustment plan only buys Lehua Culture and builds Pan Entertainment Integrated Group on October 26, 2016. The company announced that it plans to issue 56.6 million shares at 13.92 yuan per share and pay 1.102 billion yuan in cash, with a total price of 1.89 billion yuan. At the same time, at the price of 13.92 yuan per share, the company plans to raise no more than 787 million yuan from two specific targets of total investment and Sansheng capital (less than some listed companies raise by themselves), and formally enter the related fields of film, television and music artist brokerage, layout the pan-entertainment industry. From 2016 to 2018, Lehua Culture promised a net profit of 150 million, 190 million and 250 million yuan. If the acquisition is successful, it will greatly enhance the company's performance, pan-entertainment and become the main source of the company's performance.
787 million yuan in cash raised after paying 30 million yuan in related transaction fees, 502 million yuan will be used to pay cash consideration other than performance to gamblers, and 255 million yuan will be used to pay the first cash consideration to the performance promisor. The remaining cash company pays 1/3 of the remaining cash consideration of the performance promisor to du Hua and Tibet Huaguo in each period. If cash compensation is triggered in any year of the commitment year, the cash consideration to be received by the performance promisor corresponding to that year shall be given priority to offset the amount of cash compensation payable by the performance promisor, and if there is any surplus after the deduction, cash consideration shall be paid to the performance promisor in accordance with the agreement.
After the completion of the acquisition, Weifang Hi-Tech and Gongda Investment are still the controlling shareholders of the company, with 18.71% of the shares. Zhao Duren, Yang Jinjun, Dong Xiaomin and GE Xiangjun, who acted in unison, are still the actual controllers of the company. Du Hua, CEO of Lehua Culture, and its related parties will own 8.6 per cent of the shares, making it the second largest shareholder in the company. Before this adjustment, the cancellation of acquisition spring integration is mainly due to the comprehensive result of the company's objective consideration of the current relevant regulatory policies and the realizability of the target's own profits. At the same time, the company's adjustment plan to acquire Lehua Culture reflects the company's firm determination to transform into the field of pan-entertainment. From the point of view of the acquisition plan, compared with the previously disclosed plan, the company of this plan has reduced the payment consideration, lowered the promised performance of the bet, increased the payment link of cash consideration by installments, and reduced the matching funds raised, and a series of measures have been taken to increase the probability of passing the merger and acquisition of the company from the point of view of the perfection and feasibility of the plan.
We believe that the acquisition of Lehua Culture is an important first step in the company's transformation into the pan-entertainment field, and the follow-up company is expected to continue to take pan-entertainment as the transformation direction, continue to integrate high-quality resources in the industry, and build a pan-entertainment integrated ecological group.
A brief introduction to Lehua Culture
Music: sitting on the top artists and music IP resources, the idol group brokerage leader Chu Xian Lehua culture deeply cultivated the music industry, with many top music artists. At the same time, the layout includes self-creation, recording, publishing, distribution, import and export, copyright trading, performance, concert holding and other fields to realize the layout of the whole industry chain of the music industry. From a financial point of view, Lehua Culture's revenue from January to June in 2013, 2014, 2015 and 2016 was 122 million, 130 million, 211 million and 264 million yuan respectively, and its net profit was 20.86 million, 31.31 million, 5011 and 5601 yuan, respectively.
In terms of artist resources, the company's current contract for Super popular Idol includes Han Geng, a former Korean phenomenal group Super Junior member, three Chinese members of the Universe Girl Group, Cheng Xiao, Wu Xuanyi, Meng Meiqi, and four members of the O2O Girl Group. In addition, the company began its own training in 2015, and the Chinese and Korean multinational idol group UNIQ, which has been trained in Korea for 4 years, officially made its debut in September 2014, and officially started their promotion activities in Korea, and won the "most anticipated Group Award 2015" awarded by iQIYI, Inc., becoming an outstanding representative of the company's own training of artists.
According to Baidu, Inc. 's search audience analysis, the fans of the company's leading artists Han Geng, Cosmos Girls, UNIQ and Lin Zhenna showed an obvious younger trend, with fans under the age of 30 accounting for more than 50%, of which Universe Girls, UNIQ and Lin Zhenna even close to 70%. We believe that the fans of Lehua culture's artists are mainly post-90s, and they are expected to fully enjoy the dividends of the post-90s fan economy in the future.
Lehua Culture maintains a close relationship with South Korean entertainment giant CJE&M. In addition to acting for the music rights of South Korea's first Entertainment aircraft carrier CJE&M, Lehua Culture also works with CJE&M 's top Asian pop music academy M Studio to train its artists. The original M Studio introduces Korean star-making systems, training concepts and educational facilities, and employs a team of professional lecturers from Korea, China and the United States to provide a comprehensive training program for artists. We believe that Lehua Culture is the first company in China to lay out a mature idol building system, and its sustainable output capacity of high-quality idols will help it become the leader of our idol brokerage and share the development dividend of the industry.
In terms of music IP, the company currently has a total copyright of about 11253 songs, and continues to grow rapidly at a rate of more than 200 pieces of music content per month. In addition, the company will also join hands with CJ eBay in music distribution, through the Internet, telecom operators, overseas music distribution companies and world-renowned platforms such as itunes, Youtube, KKbox, to achieve the global output of music.
We believe that at present, Lehua Culture has created a full-field layout in the core layer of music, such as artist training, music production and distribution, and commercial performances. in the future, it is expected that the company's business will, on the one hand, further consolidate the layout of the core layer, cultivate its own infiltration into the core layer such as music education and training, derivatives development, and take advantage of the mature IP operation system. Realize the cross-domain operation of music IP and artist IP in film, television, games and other fields, and achieve in-depth development of value.
The ability of film and television content creation and production is the core competitive advantage of film and television companies. Lehua Culture signed a contract with Zhang Taiwei, director of "you from the Star" in August 2014, and conducted a five-year film and television business cooperation. participated in Paramount's Transformers 4
With assistance from China, the film grossed nearly 2 billion yuan at the box office. Paramount's "Ninja Turtles: the Age of variation", which was released in China in October 2014, was also sung by UNIQ, a male group owned by Lehua Culture. We believe that talents are the core competitiveness of the company, and having top talents can ensure the continuous output of the company's high-quality film and television content, so as to obtain the maximum dividend for the development of the industry.
In the next two years, it is expected that the investment business of Lehua cultural film and TV series will be further expanded. Lehua Culture plans to invest in more than 5 film projects and participate in more than 10 film projects every year. Specifically, there are many bright spots in the bidding plan, including highly anticipated works such as "the past of the Northeast", "the Golden coffin before the Ghost blows the Lantern", "Beautiful Weiyang", "A Chinese Odyssey's Love for you for 10,000 years" and so on. In addition, Lehua Culture has established cooperation with American Paramount, DreamWorks and other companies to "Marco Polo" and "Max Steel" in the next two years.
"Bus 657" and other films have carried out Sino-foreign cooperation, and it is one of the few domestic entertainment companies that have maintained good cooperative relations with large Hollywood film studios. We believe that the company has created its own top film and television creation, performing arts and production team, and is expected to fully enjoy the rapid development of China's film and TV series industry in the future. On the other hand, the company's own artist brokerage business can also form business interaction with the company's film and television business, and high-quality artists can build their own pan-entertainment ecology through film promotion and value in-depth development.
Risk factors:
Film and television content performance is lower than expected risk; business development risk; brain drain risk; piracy risk.
Investment advice:
The company adjusts its acquisition plan and relevant performance commitments. We adjust the company's 2016-18 EPS forecast to 0.37max 0.46max 0.59 yuan (the original forecast is 0.45max 0.56 pound 0.73 yuan). The current price is 15.96 yuan, corresponding to 2016-18 PE times that of 43-35-27, taking into account the leading layout and scarcity of Lehua Culture in the field of music and artist brokerage. As well as many high-quality IP resources in the film and television business, we give the company 45 times PE in 2017, corresponding to the target price of 20.7 yuan, maintaining a "buy" rating.