GHY Culture & Media - UOB Kay Hian 2021-01-19: A Content Champion In The Making

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GHY CULTURE&MEDIA HLDG CO LTD (SGX:XJB)

GHY Culture & Media - A Content Champion In The Making

• GHY Culture & Media is a media company which focuses on the production of dramas, films and concerts. The company, which is led by notable China producer, director and scriptwriter Guo Jingyu, has a strong pipeline of up to 23 film and drama projects.
• GHY Culture & Media has a formidable platform for growth as it is poised to benefit from the resumption of concerts helmed by popular singer-songwriter Jay Chou.
• Initiate coverage on GHY Culture & Media with BUY and target price of S$1.08, 38% upside, given strong earnings growth of 72% CAGR from 2019-22F.

G.H.Y Culture & Media Holding - Company Background

• GHY Culture & Media Holdings Co. Limited (SGX:XJB) is an entertainment business which focuses on the production and promotion of dramas, films and concerts in the Asia Pacific region. The group has produced TV and web dramas and films in China, Singapore and Malaysia, which have been broadcasted and/or distributed on TV networks (eg CCTV) and video streaming platforms in China (eg iQIYI and Youku). The group has also started production of its first online short drama series in Oct 20.
• GHY Culture & Media has undertaken the production of concerts for well-known international artistes in Singapore, such as Jay Chou, with upcoming concerts to be held in Singapore, Malaysia, and Australia.
• GHY Culture & Media also provides talent management services as well as costumes, props and makeup services in China and Singapore.

GHY Culture & Media - Company Milestones

• Mar 18
  • Executive Chairman and Group CEO Guo Jingyu established Tianjin Changxin Film & Media, the group’s China production arm.
• May 18
  • Established the company.
• Jun-Jul 18
  • Acquired G.H.Y Culture & Media (Singapore), the group’s Singapore production arm.
• Jun 19
  • Completed the production of dramas The Little Nyonya (小娘惹) and Make a Wish Miss Xianqi (仙琦小姐许愿吧).
• Oct 19
  • Held the group’s first concert in Singapore, featuring Li Ronghao (李荣浩).
• Nov 19
  • Completed the production of dramas Dance of the Sky Empire (天舞纪) and Perfect Village (最美的乡村).
• Jan 20
  • Completed the production of the first four out of seven films of the film series I Come From Beijing (我来自北京), with the release of three of such films on iQIYI and Youku.
  • Held two concerts in Singapore featuring Jay Chou (周杰伦).
• Jun 20
  • Release of the first episode of The Little Nyonya (小娘惹) on iQIYI and CCTV.
  • Release of the first episode of Perfect Village (最美的乡村) on CCTV.

TV and film production business.

• GHY Culture & Media has produced or co-produced several TV and web dramas and films, which have been or are slated to be broadcasted on TV networks and/or distributed on video streaming platforms in China (eg CCTV, iQIYI and Youku). This is spearheaded by Executive Chairman and Group CEO Guo Jingyu to tap on the large TV broadcasting and video streaming market in China.
• GHY Culture & Media’s revenue models for TV programmes and film production are as follows:
  1. Engaged by a customer (such as the TV network and/or video streaming platform) for production for a fixed fee. The customer will typically hold the rights to the drama or film;
  2. Developed for production by GHY Culture & Media and licensed or sold to its customer(s) for a fixed fee, where GHY Culture & Media may either license the copyright and ancillary rights to the drama or film to the customer(s) for a certain period of time and/or geographical region, or the group may sell and transfer the copyright and ancillary rights to the drama or film to the customer(s); and
  3. Developed for production by GHY Culture & Media and licensed to the customer(s) for variable fees, which are determined based on user clicks or viewership for each episode of the drama or film on the online video platform.
• GHY Culture & Media has established production teams comprising experienced directors and producers:
  1. China: GHY Culture & Media’s Senior Director of TV Programme and Film Production Xue Xin, and directors such as Mr Ju Xingmao (巨兴茂) and Mr Bai Shan (柏杉), producers such as Mr Liu Bo (刘博) and Ms Zhang Huanyin (张焕引) as well as scriptwriters such as Mr Xiao Ji Xiang Tian (小吉祥天), each of whom have been involved in various notable dramas and films in China. Some of their film and drama experience is detailed in Appendix A; and
  2. Singapore: Led by former vice-president of Mediacorp Yeo Saik Pin (杨锡彬), an established director, scriptwriter and producer who has worked on several dramas in Singapore. He is supported by experienced directors and scriptwriters, some of whom had also previously worked with him in Mediacorp.

Concert production business.

• This business segment comprises the organisation and management of concerts in various jurisdictions, depending on the scope and extent of the rights granted to GHY Culture & Media by the management agency of the respective artistes. GHY Culture & Media has undertaken the production of concerts for well-known international artistes in Singapore, with upcoming concerts in Singapore, Malaysia and Australia. It has also been involved in the production of concerts in China.
• GHY Culture & Media has been granted the rights to undertake the production of concerts for Jay Chou in Singapore, Malaysia, Australia, Thailand, Japan and China (excluding Hong Kong and Macau) on a long-term basis or without any expiry in time.

Talent management services.

• This business manages close to 50 actors and actresses who are primarily based, or whose projects and engagements are primarily based, in China and/or Singapore.

Costumes, props and makeup services.

• GHY Culture & Media provides costumes, props and makeup services for artistes and third-party production companies for their drama and film production activities by engaging subcontractors for the provision of such costumes, props and makeup services. In particular, GHY Culture & Media has engaged Mr Chen Minzheng (陈敏正) to design and create costumes and props for its drama and film projects. Mr Chen is a well-known designer for costumes, props and makeup in China. He won the Golden Horse Award for Best Makeup & Costume Design in 2018 and the Asian Film Award for Best Costume Design in 2019, among others.
• GHY Culture & Media has entered into an exclusive services and collaboration agreement with Mr Chen, pursuant to which Mr Chen has agreed to provide his costumes, props and makeup services to GHY Culture & Media on an exclusive basis. Accordingly, third-party production companies who wish to engage Mr Chen’s services will enter into contracts with GHY Culture & Media. In turn, this will be subcontracted by the group to Mr Chen for the provision of such costumes, props and makeup services.

GHY Culture & Media's directors & management team

• Executive Chairman & Group CEO: Mr Guo Jingyu
  • Mr Guo has more than 25 years of experience as a producer, drama director and scriptwriter. Prior to joining GHY Culture & Media, he was a director, producer and scriptwriter with Perfect World from Mar 11 to Dec 18.
  • Perfect World (002624 CH) is an entertainment company listed on the Shenzhen Stock Exchange. Its business include TV programme and film production. Mr Guo is responsible for directing and producing the drama, film and online video series projects produced by GHY Culture & Media.
  • Mr Guo currently Chairman of the Youth Committee of China Television Drama Production Industry Association.
• Executive Director: Ms Yue Lina
  • Ms Yue is responsible for the promotion and distribution of GHY Culture & Media’s drama and film projects. She is an established executive producer and actress with over 20 years of experience in the drama and film industry. She was an artistic director with Perfect World from Mar 11-19.
• Executive Director: Ms Wang Qing
  • Ms Wang is responsible for overseeing the accounting functions of GHY Culture & Media’s China entities, including finance and tax matters (within China), and day-to-day management of operations in China. In her previous roles, Ms Wang was a tax director with Perfect World from May 14 to Mar 19. She was also a senior tax manager with ThyssenKrupp China from Aug 12 to May 14 and a manager with Ernst & Young Consultant from Aug 04 to Jul 12.
• Non-Executive Director: Mr Yang Jun Rong
  • Mr Yang is the manager to Taiwanese musician and singer-songwriter Jay Chou, and is the CEO and music director at JVR Music International, a record and management company established in Taiwan in 2007 by Jay Chou. He is also the CEO of Eastern Eagle Investment, a concert production management company which businesses are primarily based in Taiwan.
• Lead Independent Director: Mr Yeo Guat Kwang
  • Mr Yeo is presently the Assistant Director-General of the National Trades Union Congress in Singapore. He is also chairman of the Migrant Workers Centre and the Centre for Domestic Employees.
  • Mr Yeo is currently the Lead Independent Director of SIIC Environment (SGX:BHK), which is listed on the mainboard of the Singapore Exchange Securities Trading (SGX-ST) and the Main Board of the Stock Exchange of Hong Kong. He is also an independent director of Koyo International (SGX:5OC), which is listed on the Catalist of the SGX-ST.
• Independent Director: Mr Ang Chun Giap
  • Mr Ang is the audit director of public accounting corporation Acevision & Associates PAC.
  • Mr Ang is currently an independent director of Lian Beng (SGX:L03), which is listed on the mainboard of the SGX-ST.
• Independent Director: Mr Sng Peng Chye
  • Mr Sng is a Senior Advisor, Corporate Banking of CIMB Bank, Singapore Branch.
  • Mr Sng is currently an independent director of Chemical Industries (SGX:C05), a public company listed on the mainboard of the SGX-ST.
• Independent Director: Mr Chen Mingyu
  • Mr Chen is the managing partner of D&E (Beijing) Business Consulting, a finance, tax and business advisory services firm, and a visiting professor in the Executive Masters in Business Administration programme at Tsinghua University.
• Independent Director: Dr Jiang Minghua
  • Dr Jiang is a professor at Peking University, Guanghua School of Management.
• See PDF report attached below for more details on experiences of each of the directors.

Investment Highlights

Ability to produce high-quality dramas with end-to-end production capabilities.

• The dramas and films produced by GHY Culture & Media, such as The Little Nyonya (小娘惹) and Perfect Village (最美的乡村), have achieved commercial success in China. According to Frost & Sullivan, Perfect Village ranked first in terms of viewership ratings (episodes 1-30), while The Little Nyonya ranked third (episodes 1-17) and first (episodes 18-45) in viewership ratings among all TV series broadcasted on TV channels during the same time slot. With end-to-end production competency, GHY Culture & Media is able to maximise its production capabilities.

Sizeable production pipeline guided by visionary founder, experienced key management team and reputable team of industry veterans.

• GHY Culture & Media has up to 23 drama or film projects for production and release in the pipeline. The group is led by Mr Guo Jingyu, a notable producer, director and scriptwriter in China with more than 25 years of experience. He recently won the Best Screenplay for The Most Beautiful Youth (最美的青春) for the 6th Wenrong Awards at the China Hengdian Film Festival in 2019. GHY Culture & Media’s in-house script production team is also led by Mr Xiao Ji Xiang Tian, who won the Creator of the Year Award under the Novelty category at the iQIYI Web Film Festival in 2018.
• GHY Culture & Media’s Singapore production team is led by former vice-president of Mediacorp Yeo Saik Pin, who is an established director, scriptwriter and producer.
• In addition, GHY Culture & Media has working partnerships with Perfect World, which develops and produces TV shows, movies and online games in China, as well as a memorandum of understanding with Mediacorp, providing GHY Culture & Media with further opportunities to undertake more projects.

Leveraging technological advances to expand and diversify pipeline portfolio.

• The growth of online video platforms has led to a similar growth of the web series market and an expanding market for short-form media. The web series market size experienced dramatic growth at a CAGR of 23.9% between 2015-19, increasing from RMB7.7b to RMB18.1b in 2019. Meanwhile, the short-form video market in China reached RMB54.5b in 2019, yielding a CAGR of 159.6% between 2015-19.
• In Oct 20, GHY Culture & Media diversified its online content product offerings by launching the production of its first online short drama series Whimsical World (异想世界). It is a collection of 20 short drama series with 12-24 episodes per drama series, and each episode ranges from 5-15 minutes. In addition, GHY Culture & Media will be able to leverage its business relationships with TV networks and online video platforms (including iQIYI) to develop and promote new entertainment content and products in the future. This includes online short-form video series, interactive content and multi-level entertainment products.

X-factor Jay.

• GHY Culture & Media has been granted the rights to undertake the production of concerts for well-known Taiwan singer-songwriter Jay Chou in Singapore, Malaysia, Australia, Thailand, Japan and China (excluding Hong Kong and Macau). From 2017-19, Jay Chou has held 41 concerts and ranked first among all China singers in accumulated ticket sales for concerts in China.
• In addition, the group believes it has established itself as a reputable concert production company in Singapore, which will enable it to forge business relationships with key players in the media and entertainment industry in the region, such as talent management companies, managers and artistes. This will:
  1. create opportunities for future collaborations; and
  2. for GHY Culture & Media to undertake the production of concerts and other events for such artistes.

Expanding international reach via entry into new markets.

• GHY Culture & Media also intends to expand its regional reach and strengthen its presence in the Asia Pacific region, particularly in Southeast Asia, by expanding its foothold in Singapore. GHY Culture & Media believes that gaining access to wider audiences in Singapore and Malaysia will provide the group with exposure into new markets and opportunities for growth for its TV programme and film productions as well as concert production business.
• GHY Culture & Media has completed the production of The Little Nyonya, which is a remake of a popular Singapore TV drama. As such, the group believes its experience and expertise in China will enable it to produce quality content and generate keen interest in drama and film projects produced by its Singapore and China production teams.
• GHY Culture & Media intends to:
  1. have greater and more seamless collaboration between its China and Singapore production teams by establishing a regional cast and crew for the production or co-production of its dramas and films; and
  2. distribute internationally through key TV networks and international online video platforms.
• For its concert production business, the group intends to further expand by undertaking the production of concerts for artistes in Southeast Asia and China. It will start with the production of concerts for Jay Chou in Malaysia, Australia, Japan, Thailand and China (excluding Hong Kong and Macau).

Share purchases.

• GHY Culture & Media's CEO Guo Jingyu purchased approximately 1.08m shares at S$0.63-0.675/share from 28-31 Dec 20.

Industry Outlook and GHY Culture & Media's earnings outlook.

• See PDF report attached below for analysis on industry outlook of
  • TV programme and film production
  • Concert production
  • Drama Series-related market.
• 3-year projected revenue CAGR of 56% in 2019-22F for GHY Culture & Media, driven by growth from the completion of drama productions. See PDF report attached below for more details.

GHY Culture & Media - Key risks

• GHY Culture & Media is subject to risks, which include:
  • risks relating to corporate structure;
  • risks relating to contractual arrangements;
  • delays and cost overruns that may affect TV and film production;
  • laws and regulations relating to distribution and censorship;
  • concentration risk from its major customer;
  • dependence on relationships with key agents, managers and artistes for its concert production business;
  • claims to intellectual property, including infringement of third-party rights; and
  • dependence on key management personnel for continued business success.
• See PDF report attached below for more details.

Initiate coverage on GHY Culture & Media with BUY, target price of S$1.08.

• See PDF report attached below for GHY Culture & Media's financial details. We value GHY Culture & Media at 18.5x 2021F P/E, in line with China media production peers’. See comparison of GHY Culture & Media with peers including Ciwen Media (002343 CH), Zhejiang Huace Film & TV (300133 CH), Beijing Hualubaina Film (300291 CH), Cathay Media And Education Group (1981 HK), Perfect World (002624 CH), Shanghai New Culture Media Group (300336 CH), China Film (600977 CH), Huayi Brothers Media Corporation (300027 CH) in report attached too.
• Given GHY Culture & Media’s positioning as a production of high quality drama series, we opine that the group might be able to garner a higher selling price per episodic series as compared to its peers. This should put the group on an even footing or even at a slight premium vis-à-vis peers in the industry.
• See also
  • GHY Culture & Media Share Price;
  • GHY Culture & Media Target Price;
  • GHY Culture & Media Analyst Reports;
  • GHY Culture & Media Announcements;
  • GHY Culture & Media Latest News.
• Click 'view full report' button below to see the 28-page PDF report for complete analysis on GHY Culture & Media Holdings Co. Limited (SGX:XJB).

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2021-01-19

SGX Stock Analyst Report BUY INITIATE BUY 1.08 SAME 1.08