Author|Cloud On March 8, 2022, Lehua Entertainment submitted a prospectus to the Hong Kong Stock Exchange, which launched an impact on the capital market for the fourth time in eight years. This impact does not matter, but also exposed the income of artists such as Wang Yibo and Meng Meiqi.
Source: IC photo In 2015, Lehua Entertainment listed on the New Third Board, known as the "first share of artist agency", delisted from the New Third Board in 2018; in 2016, Lehua tried to list on the backdoor with a valuation of 1.898 billion, but did not complete the profit requirements, and the backdoor was terminated; in 2018, "Idol Trainee" and "Creation 101" were launched, and Lehua began to receive listing counseling in April of the same year, but with the draft being stopped, the desire to list A-shares of Lehua Entertainment in June 2021 was once again disappointed. In January 2022, "Du Hua withdraws from the ranks of shareholders of Lehua Entertainment" was hotly searched, and the company's controlling entity was transferred to YH Entertainment Group (HK) Limited, which was registered in Hong Kong, and the company's 100% shareholding Du Hua and other executives newly transferred to Tianjin Lehua, this move is regarded as the prelude to Lehua Entertainment's sprint to the Hong Kong Stock Exchange. This time, Lehua handed over the report card of revenue and profit growth for three consecutive years, achieving a profit of 746 million yuan, of which the artist management income in 2021 accounted for 91%.
Source: Lehua Entertainment Prospectus
At the same time, combined with the reasonable speculation of the prospectus, from 2019 to 2021, Wang Yibo's revenue soared from 32.27 million to 130 million, and reached 300 million last year, becoming the current "trump card" of Lehua Entertainment.
Obviously, standing in front of the triple door of the suspension of delays, draft suspensions and entertainment restrictions, the dream of Lehua Entertainment, which is registered in the Cayman Islands and tries to list in Hong Kong, is still closely bound to top artists such as Wang Yibo.
According to the prospectus, Lehua Entertainment's business is composed of three sectors: artist management, music IP production and operation, and pan-entertainment, and entertainment capital theory observes that these three businesses are closely related to the composition of Internet manufacturers.
Du Hua is in charge of half a wall
The shareholding structure of the listed entity, Lehua Entertainment Co., Ltd., including Dongyang Alibaba Pictures and Quantum Leap (a wholly-owned subsidiary of ByteDance), not only makes equity investment in Lehua, but also provides platform and technical support for its artists. The former holds 15% of the shares, and invested in the Chinese Culture Group, which also accounts for 15% of the shares, and its Youku platform cooperates with Lehua artists Han Geng and Wang Yibo in "This! "Street Dance" has been broadcast for four seasons;
The virtual idol group A-SOUL, launched by the latter in cooperation with Lehua Entertainment, debuted on Station B in 2020, and after being controversial about the "capital invasion of the second dimension", with the business ability of mature idols and the technical presentation level far higher than that of peers, it won a wind review reversal, helping Lehua's pan-entertainment business to grow by 79.6% and increase revenue by more than 16 million yuan, higher than the company's profit in the first half of 2017. By 2021, the A-SOUL-based pan-entertainment business will bring 37.9 million yuan to Lehua.
According to Entertainment Capital, the other two major manufacturers appeared in the prospectus as more secretive "supplier A" and "customer A". Described as a "China-based technology and social media group established in 2010 with a primary focus on content production and video streaming," "Vendor A" paid more than $42 million in operating costs in 2019, accounting for more than 12 percent of the total annual cost. This year, the first season of iQiyi's "Youth with You" was launched, and debut group UNINE Zhonglehua artists Li Wenhan and Hu Chunyang occupied two seats. "Customer A" is a Chinese group "established in 1997 to focus on providing music streaming services", which generated more than 53 million yuan in revenue for Lehua in 2019, accounting for 8.3% of the total revenue. In the same year, "Chen Qingling" was broadcast exclusively on Tencent Video, becoming a phenomenon-level hit, starring Wang Yibo's single "No Sense" and selling more than 17 million copies on NetEase Cloud Music.
Image source: Lehua Entertainment Prospectus Sun Yiding, whose identity has been repeatedly speculated by the outside world, in addition to the well-known former Gome executive and former CEO of Ruisi English, in the prospectus is defined as a consistent actor who "lives with Du Hua as a spouse", and the two hold 48.2% of the shares of the listed entity through personal shareholding and the company's main body. Han Geng, an artist who has been packaged as "one of the bosses of Lehua", only indirectly divides the cake by holding "Tibet Huaguoguo", according to the calculation of entertainment capital, its shareholding ratio is only about 2.47%, which is not as good as Wang Huan (6.02%) who "serves as a supervisor of several subsidiaries of the company", and is only higher than Xiao Fei (0.03%) and Fang Shaojun (0.18%) who entered the company's independent third-party shareholders when they were listed on the New Third Board. At the operational level, as a company with artist management as its absolute main business, Lehua Entertainment tries to consolidate its "human design" as a track leader through the "first share" status of 1.5% of the artist brokerage market, and lists four other companies as a comparison in the prospectus.
Source: Lehua Entertainment Prospectus
Entertainment Capital theory combined with public data speculates that these four companies are likely to be Jiaxing Media, Happy Twist, Taiyang Chuanhe and Tianyu Media, according to the prospectus, the income of artists is 750 million, 700 million, 650 million and 340 million, respectively.
Of course, the actor management logic of these four companies is quite different from the operation logic of the "trainee-idol" agency, but just as Jiaxing heavily binds Yang Mi and Di Li Reba; the happy twist master relies on Shen Teng and Ma Li; and Tianyu deeply binds Hua Chenyu, Lehua also has its own "key dependence on artists".
02 Wang Yibo earns 300 million yuan a year, cheng Lehua "sucks the golden bull"
According to Lehua, the company currently has 58 signed artists and 80 trainees, and in three years, the company has spent 240 million, 318 million and 529 million yuan on management costs for them, accounting for an increasing proportion of total costs year after year, reaching 76.9% in 2021. Among this group of artists, Wang Yibo is lehua's key "cash cow" in the past two years. In Lehua Entertainment's 445-page prospectus, Wang Yibo's name appears 18 times.
In the list of suppliers, starting from 2020, the top five suppliers are all "enterprises controlled by signed artists", and based on various data, Entertainment Capital theory speculates that suppliers B, D, E, and F are likely to be the main body of the company where Wang Yibo, Han Geng, Fan Chengcheng and Meng Meiqi are respectively located.
That is to say, in 2019, when the "Chen Qing Ling" fire was over, Lehua "Supplier B" (reasonably speculated to be the company that Wang Yibo obtained a personal share) paid 32.27 million; in 2020, this figure soared to 130 million, accounting for 31.1% of the total operating costs; in 2021, this figure exceeded 300 million, accounting for 43.9%.
Behind this, it is not only the evidence that Wang Yibo personally earns more and more, and his ability to absorb gold continues to soar, but also the possibility that Lehua will readjust the proportion of the share after his fire. Entertainment Capital theory understands from the industry that a large number of artists in talent management companies have a 5:5 or 4:6 sharing model between artists and companies (artists take 60%), while some head artists have higher bargaining power, which can reach 2:8 or even 1:9.
In the prospectus business introduction, Lehua said that it signed with artists for 5 to 15 years, and there was a mechanism for automatic renewal of 1 to 5 years when it expired.
These revenues from talent agencies account for 91% of Lehua Entertainment's total revenue. This also corresponds to the risk factor in the prospectus: "If we fail to maintain our relationship with artists and trainees or expand the number of artists and trainees we sign, our business, financial condition and operating results may be materially and adversely affected." "
03 Star-making high-speed is sealed, and the replication of the results is doubtful
In May 2021, the regulatory series made a heavy blow to stop the talent show, closed the "soaring" channel for trainees who had just opened up the unformed, coupled with the restriction of delay, the two trump cards in Lehua's hands that had been verified to create a blockbuster were locked. However, the layout and reserve of famous artists in South Korea provide Lehua with a "safe haven", and in the prospectus, Lehua mentions its layout in South Korea many times, and the related words appear 149 times.
In addition to recruiting trainees in South Korea, LEE Sang Kyu and JUNG Hae Chang involved in the prospectus are professional music producers and former heads of Pledis Entertainment, which incubated combinations such as After School and FUTUREEEN, respectively. EVERGLOW, as a girl group that debuted in the original Korea under the Lehua brand, consists of one Chinese member and five Korean members. In South Korea, where the idol industry is mature and the competition is fierce, he has released three mini albums since his debut and won one on the stage of singing twice, but there is a big gap with aespa and ITZY, which are also five generations of girl groups. Lehua's newly launched seven-member boy band TEMPEST is all composed of Vietnamese and Korean artists, and this "de-Sinicization" group just debuted a week before the release of the prospectus, and has only released one single so far, and the subsequent development is not yet known. In 2020, jin Zihan, who participated in the second season of "Youth with You", did not form a group outside the top 9 in the total ranking, and at the end of the year, he and Six trainees under Lehua formed a girl group NAME debuted, and Du Hua and Wang Yibo and other Lehua artists posted blogs to promote it.
In the prospectus, although the proportion of artists' revenue share in total costs has increased year after year, the cost of artist promotion disclosed by Lehua has remained at about 10% in the past three years, and the cost of music content production has experienced fluctuations from 7.7% to 9.7% to 6.6%, and the contribution of this business to revenue has also decreased to 6.1% in 2021. In contrast, the pan-entertainment business, which accounts for only 1.2% of the total cost and has declined in proportion over the years, has achieved more efficient growth through the popularity of the virtual idol group A-SOUL, and Lehua has also quickly launched the male image of the "quantum teenager" after the former detonated the heat in the second-dimensional circle.
Entertainment Capital notes that Lehua Entertainment, which has achieved profit growth for three consecutive years, has a combined profit of more than 627 million yuan in the year after tax from 2020 to 2021. On this basis, the Company distributed dividends of RMB200 million and RMB400 million to shareholders respectively, with the two dividends occurring in October 2020 and March 2022 respectively, during the lehua A-share listing counseling period and before the submission of the prospectus to the Hong Kong Stock Exchange.
Source: Lehua Entertainment Prospectus Lehua Entertainment chooses to continue the listing process under the condition of severe restrictions on the draft, which undoubtedly represents a strong confidence in its own hematopoietic ability and artist's ability to absorb gold, and it is also possible to inject a shot of strength into other players on this track as the "first share of artist agent".
However, as far as this prospectus is concerned, the heavy dependence on the head artist determines that Lehua is still full of uncertainty for investors, and the fourth sprint to the capital market, whether Lehua and Duhua can "ride the wind and waves", it is worth waiting and seeing.
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