Although Deying Holdings has successfully landed on the Hong Kong Stock Exchange, it is still unknown how far its high dependence on the single IP of Little Yellow Duck can go in the capital market.
Wen 丨 BT Finance MikiKai
Under the pressure of betting, Deying Holdings International Co., Ltd. finally realized its dream of listing. On January 17, 2022, Deying Holdings was listed on the Hong Kong Stock Exchange, opening at HK$2.6 per share, closing up 16.59% on the first day, and the total market value once exceeded HK$2 billion.
Deying Holdings may be a little unfamiliar to the public, and its more widely known is the IP - B. Duck Little Yellow Duck, which often appears in household necessities, clothing accessories, toys, infant personal care, electronic products, stationery and other goods. IP licensing and peripheral product sales business supported the commercial territory of Deying Holdings and sent the company to the Hong Kong Stock Exchange for listing.
In May 2021, Deying Holdings, the holding company of B.Duck, applied unsuccessfully for an IPO on the main board of the Hong Kong Stock Exchange. In November 2021, Deying Holdings fought again on the Hong Kong Stock Exchange and officially passed the listing hearing of the Hong Kong Stock Exchange in December. On 17 January 2022, Deying Holdings, the holding company of B.Duck, was officially listed on the Hong Kong Stock Exchange at an issue price of HK$2.05 per share.
As of the close of trading on 8 February 2022, Deying Holdings was trading at HK$1.87 per share, down more than 20% from its highest price of HK$2.77 per share on the first day of listing. The "little yellow duck" who has a bumpy road to listing does not seem to be satisfactory in terms of stock prices. This paper tries to analyze the growth troubles of "Little Yellow Duck" through the basic overview analysis of Deying Holdings, the analysis of the operation of Deying Holdings and the characteristics of China's IP market, listing is not the end, Deying Holdings is highly dependent on a single IP, and will face challenges such as sustained growth and profitability in the future.
Started with a "duck"
In 1992, a cargo ship from China to the United States full of small yellow duck toys encountered a sea storm on the way across the ocean, the container ruptured, and 28,800 small yellow ducks began a 15-year-long fantasy crusoe. The cute little yellow duck has attracted widespread attention and countless circles of fans.
Inspired by the little yellow duck, related creations came into being. In 2005, the designer-turned-Xu Xialin designed the bathtub toy cartoon Little Yellow Duck for a pair of children, creating the image of "Bathing Duck" (B. Duck). After the launch of the first little yellow duck bathroom theme product, the waterproof radio, it was sold well in Japan and Europe.
At present, Xu Xialin is the chairman of Deying Holdings and Deying Global Investment Co., Ltd., the parent company of Deying Holdings. According to the data, founder Xu Xialin indirectly holds 75.36% of the equity of Deying Holdings, Wang's International (00099. HK) and OCT (Asia) hold 9.04% and 9.5% of the shares respectively.
According to the prospectus of Deying Holdings, Xu Xialin, the founder of Deying Holdings, founded Senke, a subsidiary of Deying Holdings, in 2001 and created the concept product of B. Duck Little Yellow Duck in 2005. In 2011, it authorized hong Kong licensees to carry out licensing business. Since 2012, the scope of licensing business has been expanded to South Korea, Chinese mainland and Malaysia. In 2015, it first launched e-commerce business in Chinese mainland, set up a flagship store on the Alibaba platform, and subsequently expanded to other e-commerce platforms such as JD.com and Vipshop. In 2016, we promoted offline business cooperation and carried out cooperation on projects including credit cards and theme parks. In 2020, Deying and Tencent launched an online game licensing business cooperation, and cooperated with the Forbidden City in Beijing to distribute the B.Duck series of products that year.
Since 2017, Deying Holdings has continuously launched new IPs for rich roles, including the early Buffy, B. DuckBaby, etc., and in 2018, it cooperated with Zhou Dongyu to launch a joint IP "DONGDuck". Up to now, Deying Holdings has 26 original characters and is expected to launch new characters in 2023, namely Buffy friends Butter, Mocha, Cream, Moses and DaDa.
According to market news, in 2019, Deying Holdings once applied for GEM listing on the Hong Kong Stock Exchange, and then withdrew the application; in May 2021, Deying Holdings applied for an IPO on the main board of the Hong Kong Stock Exchange again, but failed. In November 2021, Deying Holdings reapplyed for listing on the Hong Kong Stock Exchange and officially passed the listing hearing on the Hong Kong Stock Exchange in December. On January 17, 2022, Deying Holdings, the holding company of Little Yellow Duck, was officially listed on the Hong Kong Stock Exchange.
The "family"-style" expansion of the little yellow duck
Main business
Deying Holdings is mainly engaged in the role licensing business and e-commerce and other businesses, on the one hand, it creates, designs and authorizes the self-created B. Duck family role across multiple channels, as well as brand management and marketing for such roles. On the other hand, it designs and develops products featuring the character of the B. Duck family and sells them through online and offline channels. According to the prospectus of Deying Holdings, deying holdings business covers the value chain of the character product industry, including character design and development, character licensing, and character marketing and character marketing promotion featuring characters. As of June 2021, Deying Holdings has developed more than 25,000 SKUs with the B. Duck family as the main product, with more than 300 licensees and 7 authorized agents.
Role Authorization Business Aspects:
Deying Holdings' role licensing business can be divided into 5 types: commodity licensing, live entertainment licensing, content and media licensing, promotion licensing and design consulting, and can provide single, multiple or integrated service content.
According to deying prospectus, from 2018 to the first half of 2021, the revenue of commodity licensing business was HK$23.949 million, HK$41.439 million, HK$63.393 million and HK$39.632 million, accounting for 37.5%, 50%, 64.7 and 67.2% of the total revenue. At present, the commodity licensing business has become the most important source of income for Deying.
Deying uses third-party products in various consumer goods categories by authorizing Deying's own and authorized character knowledge products, and the most important third-party products can be roughly divided into household goods, clothing and accessories, toys and infant products, shoes and boots, consumer electronics and other categories. From 2018 to the first half of 2021, the three categories of household goods, clothing and accessories, and toys and infant and toddler products accounted for more than 70% of the total revenue of this business.
Live Entertainment License:
Live-action entertainment is an emerging consumer goods category, and Deying designs features primarily for participating in theme parks, catering and promotional marketing campaigns that use its character's intellectual property rights. At present, Deying and Oct Nanjing have cooperated to design a B.Duck-themed playground to open in 2020, and the data shows that the playground will receive more than 42 million visitors in 2020. At the same time, Deying jointly opened 15 indoor entertainment centers, including children's playgrounds, retail stores and restaurants. Among them, in the first half of 2021, Deying opened 20 Cantonese refreshment restaurants featuring Buffy in Beijing, Shanghai and other four places, and began to cooperate in opening more than 160 B.Duck-themed modern tea houses in 2020.
Promotion authorization: Deying uses character knowledge products for third-party promotion and marketing gift projects in different gift categories. This includes clothing and accessories, toys, furniture and lifestyle items and consumer electronics products tailored to customer campaign needs.
Content and media licensing: Deying cooperates in the form of digital machine media through offline character intellectual property licensing, including joint issuance of credit cards featuring B.Duck with Everbright Bank, and the use of B.Duck family characters to create and design paid emojis with popular social platforms such as LINE and KakaoTalk.
E-commerce and other businesses
Deying Holdings' e-commerce and other businesses mainly cover role knowledge products involving major e-commerce platforms selling products featuring the role of the B. Duck family. In 2015, Deying opened a flagship store on Alibaba's e-commerce platform Tmall, and subsequently expanded to other mainstream e-commerce platforms such as JD.com, Vipshop and HKTVmall. From 2018 to the first half of 2021, deying holdings' online revenue was HK$120 million, HK$138 million, HK$1.299 billion and HK$620 million respectively, accounting for more than 85% of the total revenue of each channel, of which online revenue accounted for 96% in the first half of 2021.
Financial Position
Income situation
According to the prospectus of Deying Holdings, in 2018, 2019, 2020 and the first half of 2021, the revenue of Deying Holdings was HK$201 million, HK$243 million, HK$234 million and HK$124 million respectively. Revenue from the role licensing business was HK$0.64 billion, HK$0.82 billion, HK$0.98 billion and HK$58 million. Revenue from e-commerce and other businesses was HK$137 million, HK$161 million, HK$135 million and HK$65 million. The proportion of role licensing business continued to rise, from 31.8% in 2018 to 47.6% in 2021. Analyzing revenue by geographical location, China's market share accounted for more than 90% from 2018 to the first half of 2021. Although the business model continues to expand, it can be seen that between 2018 and 2020, the revenue growth of Deying Holdings is weak.
In terms of role licensing business, from 2018 to the first half of 2021, the revenue of commodity licensing business increased from 37.5% in 2018 to 67.2% in the first half of 2021, at HK$0.24 billion and HK$0.4 billion respectively. The second largest revenue was design consultancy services, which fell from 31.6% in 2018 to 20.2% in the first half of 2021, at HK$0.2 billion and HK$0.12 billion respectively.
In terms of IP roles, from 2018 to the first half of 2021, B. Duck's role revenue accounted for 84.4%, 75.4%, 76.5% and 73.6%, with revenues of HK$0.54 billion, HK$0.62 billion, HK$0.75 billion and HK$0.43 billion respectively. At the same time, the proportion of B. Duck family character income to total revenue was 99.2%, 98.9%, 99.0% and 99.5%, respectively.
Product gross margin
According to the prospectus of Deying Holdings, in 2018, 2019, 2020 and the first half of 2021, the gross profit margin of e-commerce and other businesses was 49.4%, 53.4%, 59.1% and 57.3%, respectively. Among them, the gross profit margin of the clothing category increased from 55.3% in 2018 to 63.7% in the first half of 2021, and the 49.9% of the bag category in 2018 increased to 60.9% in the first half of 2021.
Deying explained that the reasons for the increase in gross profit margin year by year mainly include:
The cost of purchasing average pieces and the increase in clothing sales due to the large-scale purchase of raw materials have decreased.
Accounting methods such as inventory impairment provisions.
Net profit (profit for the year) and major financial ratios
According to the prospectus of Deying Holdings, in 2018, 2019, 2020 and the first half of 2021, the net profit (profit for the year) was HK$0.1 billion, HK$0.24 billion, HK$0.55 billion and HK$0.17 billion respectively, and the adjusted net profit was HK$0.14 billion, HK$0.33 billion, HK$0.6 billion and HK$0.26 billion respectively. Returns on total assets in 2018, 2019 and 2020 were 8.3%, 17.3% and 28.9%. From 2018 to the first half of 2021, the adjusted net profit yield was 7%, 13.5%, 25.6% and 20.7%, compared with the asset-liability ratio of 45.7%, 86.3%, 53.1% and 53.6% respectively in the same period.
China's IP market is still in the exploratory stage
The development of China's IP market is limited
In the early days, China introduced a large number of foreign movies and animations. However, in view of the different stages of development of the entertainment industry in China and the world, the development degree of China's local cultural and entertainment products is relatively backward, resulting in foreign products rapidly occupying the Chinese market, the development of Chinese entertainment products has reached an impasse, and the overall development space has been squeezed. However, since 2008, the market share of China's local entertainment industry has gradually increased, and its market influence has been continuously strengthened.
At the same time, it needs to be clear that China is still exploring ways to expand the influence of China's local IP, and most of the early IP is only extended through fewer fields, such as novels, film and television works and other fields. At this stage, China's local cultural and entertainment industry has further enhanced the attractiveness of IP to consumers and increased its influence in society by enriching the production of works on different platforms and adding multiple types of carriers. For example, in recent years, many IPs have been introduced into the game field through online mobile games, page games, and terminal games, expanding the audience. However, in contrast, foreign well-known IP has basically completed the coverage of publications, film and television, games, music and other fields, and the road to china's local IP expansion still needs to be explored.
China's IP peripheral commodity industry has few product types and slow development and follow-up
China's developed light industry and huge labor force have made China's peripheral commodity industries reach world-class levels in terms of technology and production capacity. At the same time, the number of enterprises and IP licensing in China is gradually increasing. From the perspective of long-term operational capabilities, the quality and number of new works of China's local IP follow-up are reduced, resulting in the weakening of the influence of IP, or the single means of operating new works, as well as the repeated prohibition of piracy and copycat problems, which makes it difficult for Chinese local industry enterprises to launch their own brands like similar enterprises in the United States and Japan.
On the one hand, a considerable number of consumers and industry practitioners still stay in the field of low prices and young age for peripheral products, resulting in a lack of innovation in research and development, with few types and low-end young age. On the other hand, from the perspective of the time and method of licensing cooperation, the time obtained by peripheral product companies is often shorter, and they are more inclined to choose products with fast development and low risk in the face of the burden of licensing costs, and complete profits with low price and high sales strategy.
The overall development of Chinese surrounding enterprises is relatively slow to follow up, mainly because the entertainment market, especially the Chinese local IP field, is still in the development stage, and enterprises are more cautious in the face of market risks, often choosing to enter the market after the IP heat appears, rather than similar to Japan's direct involvement in IP content development or such as the United States closely bound producers, resulting in backward start-up and a longer development process. Taking "The Wandering Earth" of the 2019 fire as an example, the film was released on February 5, 2019, and many companies chose to sign contracts and officially announce products from the end of February to March; peripheral products such as bookmarks were only listed around April of that year, and many more complex models and other products were listed at the end of 2019 and after. Lagging development and listing can easily lead to sales contraction as the IP boom fades, and it is more obvious for China's local IP, which is less durable.
China's local peripheral product market is still facing a relatively serious problem of piracy and copycats. The main reason is that there are defects in regulations and supervision, cottage products can survive for a long time before being discovered and concerned, and the process of processing infringement determination and legal judgment is time-consuming and labor-intensive, especially when it comes to overseas IP; the second is that the punishment is small, and the infringing enterprise can make a comeback by changing a vest, for example, some manufacturers of pirated toy models in China have been repeatedly fined, repeatedly changed the label and returned to the old business; finally, the copyright awareness of Chinese local consumers is still relatively weak. The low price of cottage products is obviously attractive to some groups. These reasons lead to the long-term operation and profit of pirate cottage enterprises, damage the interests of normal enterprises, and affect the normal cooperative relationship between surrounding commodity enterprises and IP enterprises. At the same time, it also dampens the enthusiasm of the peripheral product industry in independent research and development projects, forming a bad cycle of "avoiding high investment - low-grade products - rapidly being copied - further losing enthusiasm", and the improvement of product quality and grade is hindered.
The risk comes from betting pressure
Behind the urgent search for listing, Deying Holdings is under pressure from gambling. In April 2021, Deying Holdings received financing from Wisdom Thinker and Massmutual, but at the cost of setting minimum profit targets of HK$75 million and HK$8,500 for 2022 in the additional agreement, respectively, and achieving listing by 14 April 2022, otherwise share repurchases at an annual total return of 8%.
After the tortuous listing, Deying Holdings is still facing profit pressure. Profit attributable to shareholders of the parent company from 2018 to the first half of 2021 was HK$9.86 million, HK$24.1 million and HK$54.55 million and HK$17.46 million respectively, and adjusted net profit was HK$14 million, HK$32.9 million, HK$59.8 million and HK$25.6 million respectively. Looking at the profit level in the first half of 2021, there is a big gap between the annual target of HK$75 million.
In addition, B. Duck's market share since its introduction 16 years ago is still limited. The prospectus quoted Frost & Sullivan as saying that Deying Holdings is the second largest domestic role ip company in China, ranking fifth among all role IP companies in China in terms of role licensing income in 2020, with a market share of about 2.4%. According to the sales statistics of China's role intellectual property product e-commerce market, the market share in 2020 is about 0.6%. At present, the market share has not met market expectations.
In addition, new enterprises such as Bubble Matt, TOP TOY and other new enterprises have entered the game, new IP is also rising, industry competition has entered a white-hot stage, and the gold absorption ability of Deying Holdings IP will continue to be tested.
brief summary
The successful listing of Deying Holdings is not only a test of capital operation on behalf of China's IP industry, but also a further amplification of the development of China's IP industry in the open market. Whether only relying on a "little yellow duck" can support the future development of listed companies may still be a doubt in people's minds in the future. On the whole, how to grasp the sustainable development of products and expand the influence of products in the future seems to be a key to the success of the "Little Yellow Ducks".
【BT Finance Tips】This article is for reference only and does not constitute investment advice. Investors should not use this report as the sole reference factor in making investment decisions, nor should they believe that this report can replace their own judgment.