After delisting from the New Third Board, Lehua Entertainment finally chose to go to Hong Kong for an IPO.
On 8 March, Loor Entertainment Group ("Lok Wah Entertainment") submitted an application for listing on the Main Board of the Hong Kong Stock Exchange.
Leroy Entertainment's history dates back to July 2009. On July 3, 2009, Du Hua, executive director, chairman and controlling shareholder, founded Lehua Limited, which later became the main operating subsidiary of Lehua Entertainment. As of March 2, 2022, Lehua Entertainment has 58 signed artists, including Han Geng, Wang Yibo, Meng Meiqi, Fan Chengcheng, Huang Minghao, Wu Xuanyi, Zhu Zhengting, Li Wenhan, etc., as well as 80 trainees who participated in the Lehua Entertainment Trainee Program.
On September 22, 2015, Lehua Co., Ltd. was listed on the New Third Board with the stock code of 833564. NQ。 On March 22, 2018, Lehua Co., Ltd. was delisted from the New Third Board through voluntary application for delisting. In the same year, Lehua Co., Ltd. turned to A-share listing and began to explore a plan to list on the main board of the Shanghai Stock Exchange, but did not submit a formal listing application.
Three-year net profit increased by 68%, but over-relied on artist management business
From 2019 to 2021, Lehua Entertainment achieved a compound annual growth rate of 43% in terms of revenue, with its revenue increasing from 631 million yuan in 2019 to 922 million yuan in 2020 and then to 1.290 billion yuan in 2021.
Also from 2019 to 2021, Lehua Entertainment achieved a compound annual growth rate of 67.6% in terms of profit, and its profit increased from 119 million yuan in 2019 to 292 million yuan in 2020 and then to 335 million yuan in 2021.
It is worth noting that in October 2020, Lehua Limited announced a dividend of RMB200 million to shareholders, and later in March 2022, Lehua Entertainment distributed a dividend of RMB400 million. In 2020-2021, the profit of Lehua Entertainment was 627 million yuan, that is to say, Lehua Entertainment had been distributed for nearly two years before the IPO.
According to the prospectus, Lehua Entertainment currently focuses on three major business segments: artist management, music IP production and operation, and pan-entertainment business.
However, it is worth noting that most of Lehua Entertainment's revenue comes from the artist management business: in 2019, 2020 and 2021, the revenue generated by the company's artist management business was 530 million yuan, 808 million yuan and 1.175 billion yuan respectively, accounting for about 84.0%, 87.7% and 91.0% of the total revenue in the same year.
While the revenue of the artist management business has grown steadily, the music IP production and operation and pan-entertainment business of Lehua Entertainment have not grown significantly.
In 2019, 2020 and 2021, the revenue generated by the company's music IP production and operation was 0.74 billion yuan, 0.92 billion yuan and 0.77 billion yuan respectively, while the revenue of the pan-entertainment business was 0.26 billion yuan, 0.21 billion yuan and 0.38 billion yuan.
Lehua Entertainment said that the music IP production and operation business and the pan-entertainment business face competition from other operators, and there is no guarantee that they will be able to successfully maintain competition with new or existing competitors, which may lead to a decline in market share, and the business, operating results, financial condition and prospects may be adversely affected.
The artist management business relies on Wang Yibo, but will face the problem of whether to renew the artist's contract
Lehua Entertainment said in the prospectus that according to the Frost & Sullivan report, according to the 2020 artist management business revenue, Lehua Entertainment ranked first among Chinese artist management companies, with a market share of about 1.5%.
It is worth noting that among the top ten artists in the Weibo followers of Lehua Entertainment, Han Geng's contract has expired in May 2021, and the contracts of nine artists such as Wang Yibo, Meng Meiqi and Fan Chengcheng will expire before the end of 2024.
According to the prospectus, the signed artists are the suppliers of Lehua Entertainment, and the company arranges for artists to provide performing arts services to customers through participation in commercial activities, entertainment content services and music production.
From 2019 to 2021, Supplier B contributed 32.274 million yuan, 133.301 million yuan and 302.465 million yuan to Lehua Entertainment, respectively, accounting for 9.2% to 31.1% and then climbed to 43.9%; Supplier D contributed 24.140 million yuan, 24.143 million yuan and 31.242 million yuan to Lehua Entertainment, respectively.
According to the business relationship period, supplier B who contributed 468 million yuan in three years is Wang Yibo, and supplier D who contributed 79.5 million yuan in three years is Han Geng. Han Geng's contract has expired in May 2021, and Wang Yibo's contract will also expire in October 2024.
Lehua Entertainment also stated that if it fails to maintain its relationship with artists and trainees or expand the number of artists and trainees signed, the company's business, financial condition and operating results may be materially adversely affected.
Du Hua and his wife hold more than 53% of the shares, and Ali Pictures holds 14.25% of the shares.
According to the prospectus, before the IPO, founder, chairman and CEO Du Hua held 50.18% of the shares, and his spouse Sun Yiding formed a group of controlling shareholders, holding a total of more than 53%; Chinese Culture held 14.25% through CMC Sports Investment Limited, and Dongyang Alibaba Pictures held 14.25% through Inform Construction Supplies Limited. Beijing Quantum Leap Technology Co., Ltd. ("Quantum Leap"), a subsidiary of ByteDance, holds 4.74% of the shares through Afflatus Limited.
In terms of board members, Du Hua, Sun Yiding and Sun Letong are both executive directors, Yao Lu, director of Chinese cultural strategy development, Meng Qingguang, senior producer of Alibaba's Youku UP Studio, and Zhao Wenjie, who works for Quantum Leap Affiliates, are also non-executive directors.
According to the prospectus, Lehua Entertainment plans to use the funds raised from the IPO to invest in artist operations, expand the music IP library, expand the pan-entertainment business, invest and acquire businesses or assets that are consistent with the development strategy or can produce synergies with the business, overseas expansion, etc.
In terms of external investment, Lehua Entertainment introduced Chinese Culture, Quantum Leap and Dongyang Alibaba Pictures in 2014, 2018 and 2020 respectively.
On July 4, 2014, Shanghai Cultural Investment Management Co., Ltd., a subsidiary of Huaren Culture, acquired 15.74% of the equity for 132.37 million yuan, and later invested 122.36 million yuan to subscribe to the new registered capital of Lehua Co., Ltd., and the final shareholding ratio reached 25%. According to the 254.73 million yuan corresponding to the 25% stake, the valuation of Lehua Entertainment at that time was just over 1 billion yuan.
In August 2018, Du Hua transferred 5.489 million shares of Lehua Co., Ltd. to Quantum Yuedong for 124.75 million yuan. According to the 4.99% shares corresponding to 5.489 million shares, the valuation of Lehua Entertainment at that time reached 2.5 billion yuan. In just four years, Lehua Entertainment's valuation has doubled.
Later, on November 24, 2020, Dongyang Alibaba Pictures acquired 16.5 million shares of Shanghai Kunling Network Technology Partnership (Limited Partnership) for 277.5 million yuan.