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12 Private Equity Firms Step into the Media Industry

Recently, the General Administration of Press and Publication issued the Guiding Opinions on Further Promoting the Development of the Press and Publication Industry (hereinafter referred to as the Opinions). It sets out the key tasks for the next stage of development, including emerging publishing industries such as digital publishing: developing traditional paper-based publishing industries such as books, newspapers and periodicals; developing strategic emerging non-paper publishing industries such as digital publishing; developing the animation and game publishing industry; developing the printing and reproduction industry; and developing press and publication distribution and logistics industries, thereby covering the entire industry chain of publishing.

At the same time, the Opinions also point out that the development of China's press and publication industry will continue to be promoted through measures such as guiding and regulating the orderly entry of non-public capital into the press and publication industry.

Under the influence of this policy, more and more private equity funds are turning their eyes to the media industry. In 2009, as the domestic listed film and entertainment company Huayi Brothers landed on the ChiNext board, a number of private equity funds had already moved swiftly to invest in the cultural industry, with IDG, Sequoia, China Construction Bank and China Merchants Bank all investing in the cultural industry. Poly Bona, China Film Group, Shanghai Film Group and Enlight Media are all actively engaged in capital operations to achieve the goal of listing.

According to a Reuters report, some of the more influential funds, such as Hony Capital, backed by Lenovo Group, had previously raised a renminbi fund, which last year acquired a minority stake in Jiangsu Phoenix Publishing & Media Group Co., Ltd., which was already preparing for an initial public offering (IPO). At present, at least 12 private equity funds in China — including a fund backed by China Construction Bank that is raising a renminbi fund worth several billion US dollars — are investing in media-related industries.

In the A-share market, following the direct listing of Liaoning Publishing Group, Anhui Publishing Group has also completed its listing through a backdoor listing via Keda Innovation, and the asset restructuring between Jiangxi Publishing Group and Xinxin Co., Ltd. is also proceeding at full speed. Although the earlier restructuring between Xi'an Qujiang Cultural Industry Investment Group and SEG Samsung failed, it still shows that media companies are constantly seeking opportunities to enter the capital market.

Institutional and hot money flows pour in

Even as the overall market saw 5 billion yuan of capital outflow, the education and media sector gained a net inflow of 700 million yuan, ranking among the sectors. Gehua Cable, Alpha Animation, Oriental Pearl and Topway Video all saw substantial capital inflows.

Trading data released by the Shenzhen Stock Exchange after the close shows that the momentum driving Alpha Animation to its daily limit came from the combined force of institutions and hot money. Among the top five seats buying Alpha Animation, institutional seats ranked and fourth, with net buying of nearly 60 million yuan; the total buying by hot money in the other three seats was also close to 50 million yuan. The total selling by the five selling seats was less than 30 million yuan.

Chuangye advises investors to pay attention, and also Topway Video (paid channels and high-definition video-on-demand), Time Publishing (books and digital publishing), CTV Media (film and television production and a CCTV background) and Dianguang Media ((venture capital and cable television), while also advising attention to the periodic opportunities in Huayi Brothers around the release of new films.

Other analysts said that against the backdrop of government policy support, the media industry has performed well for several consecutive trading days recently, and Alpha Animation, which only rose to prominence yesterday, is worth investors' attention, while Gehua Cable, which once led the media sector's gains, may also have opportunities to remain active in the future. But some private equity figures said that the short-term gains of individual media stocks have already been rather large, and warned that some stocks will see profit-taking demand.

A 002-series stock with a tradable float of 40 million shares, an animation listed company with a unique concept; the company intends to feed its animation content creation through the toy business and then move into film, the internet (building an online children's community) and related animation licensing, ultimately forming an industry chain centered on animation content, transitioning from the "culturalization of industry" to the "industrialization of culture", and realizing its evolution from an industry operator to a content provider and finally to an industry integrator. Earnings per share in the first three quarters of last year were 0.61 yuan, and full-year net profit is expected to grow 50%-60% year on year.

On its first day of listing on September 10 last year, institutions began building positions in the stock, followed by two more records of institutional position building above 45 yuan, and the third-quarter report published 20 days later showed that three funds including China International Fund Management had appeared among the top circulating shareholders, holding a combined 1.7298 million shares and sweeping the top three circulating shareholder positions. The top ten together held 8.70% of the tradable float. From the fourth quarter of last year to now it has maintained wide-range fluctuations centered on 44 yuan, and after yesterday's daily limit it is once again near a post-listing high; if it can hold firmly above 50 yuan, upside room will open up.

The restructuring plan is to issue no more than 500 million shares to Jiangxi Publishing Group at 7.54 yuan per share to acquire its complete "editing, printing, distribution and supply" industry chain, including publishing, printing, distribution, film and television production, trade, logistics, investment and cultural real estate and other publishing, cultural and media main business assets and equity interests in subsidiary enterprises, with a preliminary asset valuation of as much as 3.2 billion yuan. Jiangxi Publishing thus effectively obtains overall listing status for a consideration of about 400 million yuan.

Data shows that Jiangxi Publishing Group ranks fourth in the national publishing industry, with sales of 4.6-4.7 billion yuan in 2009 and profit of 278 million yuan, with a target of 300 million yuan.

Along with the restructuring process, a long-term dominant player moved in early last year, and the share price, starting from 4 yuan, built a very obvious long-term upward channel, but it was not until the price had doubled that institutions stepped in at around 9 yuan, with China Merchants Securities and Sino-Europe Securities appearing in last year's third-quarter report. It then continued to climb, since the restructuring has yet to be completed. In the short term, the company still posted a fairly large loss for 2009, which is what is holding the share price back, but once the restructuring is completed, the current price is low relative to the whole range of media stocks and is worth watching.

——This article is reprinted from China Packaging Network (pack.cn), original link: http://news.pack.cn/show-362222.html