Text | There is Niu Finance, the author | Spades and longswords
Looking at today's consumer market, no one will not recognize the gold-absorbing ability of a successful IP. From Mickey to Winnie the Pooh to the explosive Lingna Belle today, Disney has proved the enduring life of its IP with a total of hundreds of billions of dollars in total IP revenue. In 2020, the sudden emergence of the tide play giant Bubble Mart is even more lamenting the great power played by the Z generation in the construction of emerging IP.
Now, in 2022, another company with a cash cow-level IP plan to embrace the capital market – Deying Holdings, the founder of the well-known IP "B. Duck", launched its second assault on the Hong Kong Stock Exchange in November 2021 and recently successfully passed the listing hearing.
Sixteen years after "drifting", the little yellow duck pushed open the door of the Hong Kong Stock Exchange
On December 29, 2021, Deying Holdings International Limited (02250. HK) officially passed the hearing of the Hong Kong Stock Exchange and will offer 120 million shares worldwide at an offer price of between HK$2.05 and HK$3.45 per share. According to the announcement, its sole sponsor is Everbright Securities, and the joint bookrunners and joint lead managers include BOCOM International, Zhongtai International, Guotai Junan, etc.
Before the active listing of this year's active table, the name of Deying Holdings was not known to many people, but in fact, it has long been among the first IP companies in China, and all this is due to the "ducks" that fell into the water 30 years ago.
In January 1992, a batch of bathtub toys produced in Chenghai, Guangdong Province, was hit by a storm on the way to the port of Tacoma, Washington, USA, and 12 multimodal containers were washed into the sea. These rubber toys contain animal figures such as beavers, frogs and turtles, but at most and most famous are the nearly 30,000 yellow rubber ducks – and in the years that followed, the ducks drifted around with the currents, leaving traces on the coasts of many countries, and they became the best source of inspiration for oceanographers and artists.
Hong Kong designer and "second generation" Hui Xialin is one of the creators who were "captured" by the ducks, and at that time he was worried about finding a bathtub toy that could both please his children and have the design aesthetics, and the emergence of the "Duck Fleet" inspired him. In 2005, the first B. Duck stepped down the production line of the Schaucherin factory, and its journey as an independent brand began.
As early as the year of B. Duck's birth, Xu Xialin used it to carry out the retail business of specialty goods, launching products such as waterproof radios in bathrooms. In the years that followed, Xu and his Semk Products Ltd (now part of Deying Holdings) were also committed to carrying forward the image of B. Duck. To this end, he officially launched the licensing business in 2010, and since 2011, he has authorized third parties to use the role of B. Duck as a consumer product and promotion purpose, and today, B. Duck has become a veritable pillar of deying holdings.
Having said that, Deying Holdings does not seem to be favored by capital.
Judging from the prospectus, OJ VC Group, Regal Hotel (00078. HK), Wang Shi International, Premier Noble, Wisdom Thinker of Henderson (00012) and Vantone have all participated in the investment in Deying Holdings, but among them, OJ VC Group, Regal Hotel and Premier Noble, which invested with Wang Group, have all previously withdrawn from the shareholders, and Wisdom Thinker and Wantong just joined through pre-IPO financing in April this year.
After the restructuring is completed, the equity structure of Deying Holdings, picture from the prospectus
It is worth noting that Wisdom Thinker and Vantone signed an additional agreement with Deying Holdings in April this year. In this agreement, Li Jiajie and Wantong require that Deying Holdings must be listed by April 14, 2022, otherwise it will need to repurchase shares at a total return of 8% per year. This may be the reason why Deying Holdings is now eager to land on the Hong Kong Stock Exchange – in this increasingly competitive environment, it is obviously not a good idea to delay the listing at the risk of losing two shareholders.
What are the fundamentals?
According to the data in the prospectus, the revenue of Deying Holdings in the period of 2018-2020 was HK$2.008 billion, HK$2.43 billion and HK$2.335 billion respectively, while the revenue in the first half of 2021 was HK$1.237 billion, an increase of 33.2% compared with HK$929 million in the same period of 2020, and the net profit between 2018-2020 was HK$189 million, HK$378 million and HK$740 million respectively, and in the first half of 2021, Its net profit reached HK$274 million, up 42% from the same period last year.
However, Deying Holdings, which has been developing for sixteen years, has not been able to catch up with the younger Bubble Mart.
According to Bubble Mart's financial reports in recent years, its revenue figures for 2018-2020 are RMB515 million (approximately HK$630 million), RMB1.683 billion (approximately HK$2.06 billion) and RMB2.513 billion (approximately HK$3.075 billion), and net profit is RMB99.52 million (approximately HK$122 million), RMB451 million (APPROXIMATELY HK$552 million) and RMB523 million (APPROXIMATELY HK$640 million), respectively. In the first half of 2021, the two figures were HK$1,772 million (HK$2,169 million) and MOP359 million (HK$439 million) respectively. It can be seen that there is still a big gap between Deying Holdings and Bubble Mart.
The reason for this may be related to the different business philosophy of the two.
The business model of Deying Holdings is different from that of Bubble Mart, which has been monetizing IP such as Molly through the sale of blind box toys, while Deying Holdings, although it also sells peripheral products through channels such as e-commerce platforms, has been more inclined to provide IP authorization for third parties in recent years to earn various fees, which can be seen from the rapid growth of its related income.
From 2018 to 2020, the revenue earned by Deying Holdings from the role licensing business was HK$63.827 million, HK$81.63 million and HK$98.039 million respectively, accounting for 42% of the total revenue from 31.8%. In contrast, the share of e-commerce and other businesses has been declining in recent years, from 68.2% in 2018 to 58.0% in 2020.
The rapid growth of the licensing business is not unrelated to the expansion of the licensor team of Deying Holdings. As of June this year, the number of licensors with which it has established cooperative relations has reached 346, and the number of licensed products and business types has exceeded 20,000. At the same time, Deying Holdings has also increased the minimum deposit, design consulting service fee and additional licensing fee charged to licensors, which is the source of the increased revenue of HK$27.7 million in licensing business in the first half of 2021.
Among the more than 20,000 kinds of authorized products in Deying Holdings IP main B. Duck, the vast majority are clothing and accessories products, and the SKUs of this category reached as many as 12,000. But the problem is that the profit of the clothing category is actually low, relying more on the volume to support revenue, and for the authorization of other fields, Deying Holdings is not deeply involved, and the number of shoes, furniture and daily necessities SKUs has reached more than 3700 and 1200 respectively, which is far behind clothing. If Deying Holdings wants to surpass Bubble Mart in terms of revenue, expanding its own scope of authorization is a solution.
The way to break the game is hard to find
Putting aside the fundamentals, both Deying Holdings and Bubble Mart actually face the same problem: over-reliance on the same IP. Just as Bubble Mart is inseparable from Molly, the connection between Deying Holdings and Little Yellow Duck has become closer and closer in the past few years. According to the prospectus, the revenue generated by B. Duck for Deying Holdings in 2018-2020 was HK$53.892 million, HK$61.555 million and HK$75.035 million, accounting for 84.4%, 75.4% and 76.5% of the total role licensing revenue, respectively.
Faced with such a dilemma, the two IP giants have responded in surprisingly similar ways.
For its part, Bubble Mart has recently been working to improve the status of other head IPs (such as Dimo, Pucky) and trying to support more waist IP, at the same time, it has also expanded its business territory through extensive investment, sparing no effort in building landmark stores and parks; Deying Holdings also stressed in the prospectus that the company will continue to create new roles outside the B. Duck family – such as "Buffy's friend" – to ensure that the role continues to be recognized. In addition, Deying Holdings has already cooperated with OCT Nanjing to build a theme park in 2020, and also plans to open a flagship store in Shanghai.
In order to further enhance the influence of IP, Deying Holdings and Bubble Mart's desire for in-depth content creation such as animation and comics has also begun to increase, a typical example is that Bubble Mart completed its investment in the animation IP research and operation venture "Two Points and Ten" in September 2021 - the latter has launched a number of animation IP such as "I Am Jiang Xiaobai" and "The Legend of the Great Wall of Giant Soldiers"; Deying Holdings has started from its own licensing business and expanded the scope of licensing to the field of content and media creation.
As Bubble Mart CEO Wang Ning said before its listing, "China's Disney" is undoubtedly the ultimate goal of Bubble Mart in the future - there are revenue channels online and offline, while maintaining huge IP influence and evergreen staying power. Judging from the bold plan in the prospectus, the goal of Deying Holdings may be the same, after all, Disney's success is so tempting.
However, is this success really replicable?
For a long time, the deep cultivation of the film, animation and other content fields has been regarded as the top priority of Disney's rise, but today's situation is no better than in the past, the increasingly fast pace of content viewing by Chinese consumers, and the impact of huge fragmented content brought by short video platforms such as Douyin and Kuaishou, it is really difficult to reproduce Disney's route of relying on movies. Even Disney itself is launching more "short and fast" new IP like Internet celebrities to win over the newly rising Generation Z in the Chinese market - the explosion of Daffy Bear, Lingna Belle, and Xing dailu is the best example.
So is it a good idea to emulate Disneyland, which is a big asset? Perhaps the domestic giant Huaqiang Fantawild, which is also a big IP player, can give the answer - it has been eight years since its "Bear Haunting" has been on fire "Bear Haunt valley", but the profitability of these theme parks is not high today. According to the 2020 financial report, the gross profit margin of the construction and operation of Huaqiang Fantawild Cultural and Technology Theme Park was 13.64% and 22.16% respectively, while the gross profit margin of the rest of its business was above 70%.
All in all, the game-breaking route chosen by Deying Holdings and Bubble Mart is not the best, but the market has not allowed them to continue to eat the old money. On the tide play blind box track where Bubble Mart is located, new players such as TOPTOY, 52TOYS, X11 and other new players are catching up and trying to occupy the vast blue ocean market; although Deying Holdings is still entrenched in the position of the first place in the licensing of clothing IP, the competition of more "national tide" IP such as the Palace Museum, National Treasure, and Dunhuang Research Institute is still worth its vigilance.
For Bubble Mart, it can still attract the attention of consumers with novelty such as blind boxes to wait for the opportunity to break the game, but if Deying Holdings continues to follow this path, it is more likely to become "China's Sanrio" than to become "China Disney" - the Japanese company ranks at the top of the global IP ranking with hello Kitty authorization, but it has not only failed to cultivate Hello Kitty's successor, but also has the first fiscal deficit in five years in 2021. If Deying Holdings does not want to follow the old path of Sanrio, it is absolutely the top priority to continue to explore new directions of strength.