GHY CULTURE&MEDIA HLDG CO LTD (SGX:XJB)
GHY Culture & Media - 2020 Stellar Maiden Results; Shooting For The Stars
- GHY Culture & Media reported a stellar core net profit of S$42.7m (+244% y-o-y) for 2020, in line with expectations for its maiden results since its listing. The group’s drama segment contributed to revenue growth, with six drama series sold and completed in 2020, alongside two dramas series currently in production.
- Concert production as well as a pipeline production with higher episode count would be an earnings boost to GHY Culture & Media. M&As are also a potential prospect.
- Maintain BUY with a 9% higher target price of S$1.18.
GHY CULTURE & MEDIA'S FY20 RESULTS
2020 core earnings surged strongly by 244% y-o-y.
- GHY Culture & Media (SGX:XJB) reported core net profit of S$42.7m (excluding IPO expense), forming 98% of our estimates, in line with expectations. The group has declared a final dividend of 1.07 cents, representing a 30% payout ratio.
Ramping up drama productions...
- Revenue of S$127.1m was up 93% y-o-y while gross margin was 44% (+15ppt). The TV and Film segment contributed 85% of the group’s 2020 revenue. There was a strong demand for GHY Culture & Media’s drama series, with six drama series sold and completed in 2020, while two dramas and one online short drama series are in production as at 31 Dec 20. This compares with two completed dramas series in 2019.
... With healthy margins and capturing growth across the production process.
- GHY Culture & Media has end-to-end production capabilities of its drama production, which enables oversight and control over the entire production process. This allows GHY Culture & Media to maximise operational efficiencies to generate overall cost savings, thus contributing to the enhanced gross profit margin.
- In 2020, GHY Culture & Media noted that six out of eight dramas that were developed by the group had been licenced or sold to customers for fixed fees which enjoyed higher gross margins. We view that this showcases the solid earnings potential in its production model, whilst noting GHY Culture & Media’s relatively high ROE.
Pipeline with larger scale projects, higher episode count; cash available for growth.
- GHY Culture & Media has another 13 dramas and one film series to be produced and released progressively through 2021-22. Management also noted that potential drama series produced in 2021 are larger scale projects with higher episode count.
- In addition, GHY Culture & Media also has net cash of S$105m and is positioned for growth with potential M&As.
STOCK IMPACT
- COVID-19 measures. There were slight delays in the filming schedules of two dramas and online short-form video series as of end-20, although filming has since resumed on these projects. GHY Culture & Media highlighted that closure of workplaces due to Malaysia’s Movement Control Order (MCO) could affect on-site filming, while other production activities such as screenwriting and post production can take place remotely to facilitate the progress of film and drama projects in a timely manner.
- Watching for the return of concerts. The number of concerts held in 2020 was at a low as there were only two Jay Chou concerts held in Singapore during the early part of the year. GHY Culture & Media has the rights to undertake the production of concerts for Jay Chou in Singapore, Malaysia, Australia, Thailand, Japan and China (excluding Hong Kong and Macau). We note that in a normalised pre-COVID period between 2017-19, Jay Chou held 41 concerts globally. While COVID-19 measures are still in place and mass events are unlikely to return until authorities have contained the virus spread, we opine that a normalisation of concerts would be a growth driver for GHY Culture & Media.
- Contract wins will be a boost. Management noted that 1Q is usually a slower quarter in terms of drama production negotiations with TV/streaming networks. We opine that a pickup from 2Q21 onwards will be a boost for the group.
- Share purchases. GHY Culture & Media's CEO Guo Jingyu recently purchased approximately 0.66m shares at S$0.75/share, accumulating almost 1.74m shares since the company’s listing.
EARNINGS REVISION/RISK
- We expect GHY Culture & Media's earnings to grow by 48% y-o-y in 2021 given that the strong drama production pipeline of higher episodic count will contribute to sustainable growth and earnings resilience. The resumption of concerts will also be a significant uplift.
VALUATION/RECOMMENDATION
- Maintain BUY on GHY Culture & Media, with a target price of S$1.18. We value GHY Culture & Media at 20x 2021F P/E (previously 18.5x), in line with China media production peers’. See the comparison of GHY Culture & Media with China listed peers including Ciwen Media, Zhejiang Huace Film & TV, Beijing Hualubaina Film, Shanghai New Culture Media Group, Huayi Brothers Media Corporation, etc in report attached below.
- See
- GHY Culture & Media’s positioning as a producer of high quality drama series, with end-to-end production capabilities, should put the group on an even footing or even at a slight premium vis-à-vis peers in the industry. A recently listed peer is Strawbear Entertainment Group (2125 HK). Wider analyst coverage will also help to re-rate the counter.
- GHY Culture & Media's share price is currently trading at an attractive 13x 2021F P/E, lower than peers, while exhibiting stronger earnings growth.
SHARE PRICE CATALYST
- Regulatory approval for the resumption of concerts.
- Contract wins for the production of drama series.
- M&As
Lucas Teng
UOB Kay Hian Research
|
John Cheong
UOB Kay Hian
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https://research.uobkayhian.com/
2021-03-04
SGX Stock
Analyst Report
1.180
UP
1.080
