GHY Culture & Media - DBS Research 2021-04-15: Catch The Rising Star; Initiate Coverage With Buy


GHY Culture & Media - Catch The Rising Star; Initiate Coverage With Buy

  • Initiate coverage on GHY Culture & Media with BUY and target price of S$1.00 based on sum-of-parts valuation, offering potential upside of 32%.
  • Leveraging on strong partnerships with top online video streaming platforms to derive ~40% growth in revenue.
  • Healthy production pipeline to drive 46%/39% earnings growth in FY21F/FY22F.
  • Flexible revenue models; end-to-end production capabilities with a strong management team.

Initiate coverage on GHY Culture & Media with BUY rating.

  • We initiate coverage on GHY Culture & Media (SGX:XJB) with a BUY recommendation and target price of S$1.00.
  • Our target price for GHY Culture & Media is based on the sum-of-parts valuation methodology. Implied P/E for FY21F and FY22F based on our target price are 19.4x and 13.9x, still at an average discount of 22% to one of its closest peers, Strawbear Entertainment Group (2125 HK), which was listed on the Hong Kong Stock Exchange in January 2021, and trading at 23.4x/18.8x FY 21F/FY22F P/E.

Strong media and entertainment industry network; partnership with PRC’s top online video streaming platforms

  • GHY Culture & Media has established a strong network of business relationships with key industry players such as TV networks, video streaming platforms and other production companies in the PRC and in the region, including Singapore and Malaysia. These include its established business relationships with CCTV, iQIYI and YOUKU, which have been crucial to the growth and success of its business. To date, iQIYI has been the key partner, accounting for more than 50% of the drama produced.
  • GHY Culture & Media had also entered into a memorandum of understanding with TV Singapore Pte. Ltd. (“Mediacorp”) in March 2020 to co-produce at least two drama or film projects over a three-year period.

Flexible revenue models to capture upside

  • GHY Culture & Media has different revenue models to capture various opportunities. For the fixed fee models, revenue and cost of sales are either recognised at a point in time or progressively based on the stages of completion of the project. GHY Culture & Media also has the flexibility to opt for a variable fee model, where its fees are calculated based on user clicks or viewership. This model works well for highly acclaimed dramas.

End-to-end production capabilities stand out among peers; better control over costs and quality.

  • GHY Culture & Media’s expertise and capabilities across the business value chain with its scriptwriting abilities, talent management services, costumes, props and make-up services, as well as post-production capabilities is one of its key competitive advantages over other production companies. With its end-to-end production capabilities, GHY Culture & Media is able to seamlessly combine its scriptwriting skills with its production capabilities to produce well-received dramas and films.
  • As the Group oversees the entire production process from beginning to end, it has better control over the process and the final product, as well as better manage costs and ensure high quality to maximise potential.

Content is king; healthy drama production pipeline but expect concert resumption only in 2022

  • There is strong pent-up demand for entertainment content. GHY Culture & Media has a healthy project pipeline for dramas, films and short videos.
  • Despite its short operating history of only two years, GHY Culture & Media has already produced two well-received dramas. The commercial success of "The Little Nyonya 小娘惹" and "Perfect Village 最美的乡村", which were released in June 2020, is a testament to the quality of GHY’s dramas and films and the capabilities of its production teams. As a result of the positive reception, various established TV networks and video streaming platforms in the PRC, such as China Central Television (中国中央电视台) (“CCTV”), iQIYI Inc. (爱奇艺) (“iQIYI”) and Youku Tudou Inc. (优酷土豆股份有限公司) (“YOUKU”) are in discussions with GHY Culture & Media to broadcast and/or release of some of its ongoing productions.
  • GHY Culture & Media has a healthy production pipeline with more than 20 dramas planned for production or release from now till 2022.
  • For the concert segment, we expect pent-up demand for concerts to be unleashed once lockdowns are lifted, but only in FY22F. To err on the side of caution, we have assumed no concerts to be held in FY21F, and concert production can only resume in FY22F. We expect pent-up demand for concerts to be unleashed in FY22F and project 11 concerts for Jay Chou’s in FY22.

Secured long-term contract for superstar for the concert production business

  • GHY Culture & Media has secured the rights to undertake the production of concerts for Jay Chou (周杰伦), a popular and well-known Taiwanese singer-songwriter, in Singapore, Malaysia, Australia, Thailand, Japan and in the PRC (excluding Hong Kong and Macau) either on a long-term basis or without any expiry.
  • GHY Culture & Media had also produced concerts for other popular artistes, including Li Ronghao (李荣浩), in Singapore.

Led by industry veteran, supported by experienced key management team

  • Mr. Guo Jingyu, GHY Culture & Media's Executive Chairman and Group CEO, is a notable producer, director and scriptwriter in the PRC with more than 25 years of experience. He has produced and directed several successful dramas and films, and has general oversight of the production of every drama and film project undertaken by the Group. He is well supported by key management personnel, who are also closely involved in the production process from start to finish, from scriptwriting and reviewing and selecting the scripts for production, to the production phase, post-editing and finishing processes.
  • The management team includes industry veterans who have unique knowledge and extensive expertise in the production of dramas and films.

Strong team of talented scriptwriters

  • One of the key determinants in the success of a drama or film is the quality of its script. GHY Culture & Media has a strong in-house script production team led by Mr. Guo Jingyu and Mr. Xiao Ji Xiang Tian. Both have written scripts for award-winning dramas and films.
  • With its strong script-writing capability, coupled with ability to identify opportunities to select and acquire external content, GHY Culture & Media is able to strategically generate and select scripts with themes and content that resonates with consumers and capture market demand.

Create synergies across all business divisions

  • GHY Culture & Media’s business network and presence across various segments of the media and entertainment industry allows the Group to extract synergies across its business segments. The talent management services business ensures a constant talent pool for the TV program and film production business, while the concert production business can produce events, such as stage plays and musicals, based on the dramas or films produced by the Group.

Key Risks: Impact of the COVID-19 pandemic outbreak; dependence on key management team; highly competitive industry.

  • A protraction or worsening of the COVID-19 pandemic could lead to potential delays in the production schedules of dramas and film projects, and postponement or inability to undertake concert productions, which would impact the Group’s business, financial position, results of operations and prospects.
  • GHY Culture & Media’s success to-date is attributed to the contributions and expertise of its key management team, in particular, Mr. Guo Jingyu, Executive Chairman and Group CEO. Its continued success is therefore dependent to a large extent on its ability to retain such key management personnel. The industry where GHY Culture & Media operates in is highly competitive; oversupply of dramas and films may affect viewership and ratings.

Lee Keng LING DBS Group Research | Wei Le CHUNG DBS Research | 2021-04-15
SGX Stock Analyst Report BUY INITIATE BUY 1.00 SAME 1.00