Updated: Jan 16
G.H.Y Culture & Media (“GHY” or the “Company”) is offering 18.696m placement shares and 3m public offer shares at S$0.66 per share for a listing on the SGX Mainboard. The IPO will close on 16 December 2020 at 12 noon. Shares are expected to start trading on 18 December 2020 at 9 am. The market cap based on the offering price will be approximately S$708.7m.
GHY is in the entertainment business that focuses on the production and promotion of dramas, films and concerts in the APAC region. The Company has produced TV and web dramas and films in the PRC, Singapore and Malaysia which have been broadcasted and/or distributed on TV networks (e.g. CCTV), and video streaming platforms in the PRC (e.g. iQIYI and YOUKU). GHY has undertaken the production of concerts for well-known international artistes in Singapore, with upcoming concerts to be held in Singapore, Malaysia and Australia. In addition, the Company provides talent management services and costumes, props and make-up services in the PRC and Singapore.
The revenue contribution from each of its business segments as well as revenue by geographical segment is shown below. As you can see, the main revenue drivers are the TV program and film production, and Concert production segments. Meanwhile, the Company’s revenues are split between the PRC and Singapore.
Use of Proceeds
GHY intends to use its net proceeds from the IPO of S$101m for the following purposes:
Expansion of its TV program and film production business via investment in production, acquisitions, joint ventures and/or strategic alliances (S$64.5m);
Expansion of its concert production business via investment in production, acquisition, joint ventures and/or strategic alliances (S$21.5m); and
General corporate and working capital purposes (S$15m).
Mr Guo Jinyu is the Company’s founder, executive chairman and CEO. He is a notable producer, director, and scriptwriter in the PRC with more than 25 years of experience and has produced and directed several successful dramas and films. Post-IPO, he will own 59.6% of GHY.
Meanwhile, Mr Yang Jun Rong (Non-Executive Director) will own 7.10% of GHY.
Industry Growth Rates
Source: Frost & Sullivan
The tables above show the relevant historical and estimated growth rates of the markets that GHY competes in. As you can see, most of the markets are forecasted to grow at a decent clip which bodes well for the Company seeking expansion and growth.
GHY has shown significant growth since its incorporation in 2018. The Company's 6M2020 profit after tax exceeded FY2019's in spite of the tumultuous first half of 2020. Moving forward, we should see further top-line growth and margin expansion driven by the increased contribution from concert production post-pandemic.
While GHY does not have a fixed dividend policy, its board intends to recommend dividends of at least 30% of NPAT in FY2020 and FY2021. This translates to an approximate dividend yield of 1.1% based on the annualized adjusted FY2020 EPS of S$0.0242 (i.e. 6M2020 adjusted EPS multiplied by 2).
Based on the offering price of S$0.66 per share, annualized adjusted FY2020 EPS of S$0.0242 GHY is priced at a P/E of 27.3x. On an absolute basis, this seems reasonable given the high-growth profile of the Company.
The closest locally listed peers would be mm2 Asia and UnUsUal. Their current P/Es are not a meaningful comparison as both companies have been badly affected by the pandemic. Both mm2 Asia's and UnUsUal's stock price are down by more than 40% YTD.
My Thoughts on G.H.Y Culture & Media’s IPO
1) From a market environment perspective, there seems to be a strong appetite for IPOs given the positive price action of the preceding mainboard IPOs (i.e. Nanofilm and Credit Bureau Asia) of 2020. As such, the current IPO environment for GHY is favourable and it would not be surprising if we see a pop upon debut on Friday (18th December 2020). I tried to get my hands on the placement shares via my broker but was only allocated a small fraction of my application.
2) For a longer-term holding perspective, GHY is definitely a growth play with only a prospective FY2020 1.1% dividend yield based on a 30% dividend payout. I like that fact that the company is owner-operated (i.e. founder-led with a significant stake in the business) and competing in a growing market. In addition, the Company should see tremendous tailwinds for its concert production and talent management segments in the post-pandemic recovery as people rush to go to concerts once again.
3) My key concern for GHY as a longer-term holding would be the uncertainty involving the commercial success of the Company’s dramas, films and/or concerts moving forward given its relatively short operating track record. As this is an inherent characteristic of the business, only time will tell if GHY is a cut above the rest.
Thanks for reading,
Disclaimer: This article is not an investment (buy/hold/sell or otherwise) recommendation, this is only for educational and discussion purposes. This article is not tailored to the specific circumstances of any reader. I/we/The Snowball do/does not purport to be in the business of providing financial advice and the contents of the article should not be regarded as such.