On November 16, Lehua Entertainment Group, once known as "Wang Yibo concept stock" by netizens, submitted a prospectus again, intending to list on the main board of Hong Kong.
Prior to this, Lehua Entertainment had applied for IPO three times, and in March this year, Lehua Entertainment submitted its first application for listing in Hong Kong stocks, and passed the hearing of the Hong Kong Stock Exchange in August, which was originally scheduled to be listed on September 7; However, on September 2, Lehua Entertainment issued an emergency announcement saying that due to global economic inflation and epidemic factors, it decided to suspend the IPO plan of Hong Kong stocks.
Now Lehua Entertainment's secondary submission application, what are the new changes?
1. Company profile: Han Geng is both an employee and a shareholder
Lehua Entertainment Group is a well-known artist management company in China, founded by Du Hua in 2009.
Lehua Entertainment's main business includes artist management, including artist training, operation, publicity, etc., covering the entire artist management life cycle, and has further expanded into music IP production and operation and pan-entertainment business in recent years. At present, it has Han Geng, Wang Yibo, Meng Meiqi, Wu Xuanyi, Fan Chengcheng and other artists, which is a veritable "star-making factory".
Image from Lehua Entertainment's official website
According to Frost & Sullivan, in China's highly fragmented artist management market, Lehua ranked first in terms of artist management revenue in 2021 with a market share of 1.9%. As of the Latest Practicable Date, Lehua Entertainment currently has a total of 69 signed artists and 62 trainees.
According to public information, Lehua has a total of 3 rounds of financing, with investors including Alibaba, ByteDance, Chinese Culture, Lebo Capital and so on.
In 2012, Lebo Capital and Rongxi Chuang invested tens of millions of yuan to help Lehua Entertainment complete the Series A financing.
Two years later, with the participation of Chinese Culture Group, Lehua Entertainment completed a series B financing of 255 million yuan; in 2015, Internet industry giants Ali and ByteDance invested through their related companies and became new shareholders of Lehua Entertainment.
According to the prospectus, before the listing of the table, Ms. Du Hua, chairman of Lehua Entertainment, held 50.18% of the company's shares, and her spouse Sun Yiding held 3.31%; Its artist Han Geng also became a shareholder, holding 2.35%; Zhejiang Dongyang Alibaba Pictures holds 14.25% in the name of Interform Construction, Chinese Culture holds 14.25% in CMC Sports Investment Limited, and Beijing Quantum Leap Technology, backed by bytes, holds 4.74% with Afflatus.
Image from Lehua Entertainment's prospectus
In September 2015, Lehua Entertainment was listed on the New Third Board under the symbol "833564" under the abbreviation "Lehua Culture", and terminated its listing in March 2018 three years later.
After delisting from the New Third Board, Lehua Entertainment plans to list on the main board of the Shanghai Stock Exchange. In March 2018, Lehua Entertainment filed a pre-IPO counseling with the CSRC, and later terminated the listing counseling in May 2021, indicating that it was based on long-term business development plans and financing needs for further expansion.
In March 2022, Lehua Entertainment once again started its listing plan, scheduled to be listed on the Hong Kong Stock Exchange on September 7 of the same year, and announced the suspension of its IPO in Hong Kong on September 2.
2. Business status: 80% of income depends on a single artist
Lehua Entertainment's main business includes three categories: artist management, pan-entertainment business, and music IP production and operation.
According to the prospectus data, from 2019 to 2021 and the first nine months of 2022, Lehua Entertainment's revenue was 631 million, 922 million, 1.290 billion and 752 million, respectively; the net profit during the year was about 119 million, 292 million, 335 million and 1.345 billion, respectively, and the net interest rate was 18.90%, 32.10%, 30.60% and 30.50%.
Source: Lehua Entertainment Group Prospectus
From January to September 2022, Lehua Entertainment's revenue was 753 million yuan, a year-on-year decrease of 15.9% compared with last year; However, the profit for the period was 1.345 billion yuan, a significant increase of nearly four times year-on-year. According to the prospectus, the significant increase in profit during the period was mainly due to the change in the valuation of convertible preferred shares.
Source: Lehua Entertainment Prospectus
At present, the artist management business is the main source of revenue for Lehua Entertainment. This business is mainly profitable by contracting artists to participate in commercial activities (brand endorsement, commercial promotion, etc.) and provide entertainment content services (appearing in film and television dramas and variety shows, etc.).
According to the prospectus, from 2019 to 2021, the revenue of Lehua artist management business was 530 million yuan, 808 million yuan and 1.175 billion yuan, accounting for 84%, 87.7% and 91.3% of the total revenue in the same period. In the first nine months of 2019-2022, the revenue attributable to Lehua's top ten artists accounted for 74.8%, 83%, 85.6% and 87.2% of the total revenue in the same period, respectively.
Source: Lehua Entertainment Prospectus
The latest prospectus discloses the situation of Lehua Entertainment's five major suppliers, of which "Supplier B" occupies the first place in operating cost ratio in 2020, 2021 and January-September 2022.
During the reporting period, Lehua Entertainment's procurement amount from "Supplier B" reached 32.274 million yuan, 133 million yuan, 302 million yuan and 211 million yuan, accounting for 9.2%, 31.1%, 43.9% and 46.7% respectively. Since 2019, Lehua Entertainment has purchased a total of 678 million yuan from this supplier, and it is not difficult to see from the increasing procurement ratio year by year that Lehua Entertainment's business is very dependent on this "supplier B".
Image from Lehua Entertainment's official website
From the corresponding business years, signing time and procurement amount began to increase significantly in 2020, "Supplier B" corresponds to the most likely Lehua's head artist Wang Yibo who exploded in the summer of 2019, and the prospectus also stated that from 2020, the revenue growth from the artist accounted for more than 80% of the company's overall revenue growth.
3. Development trend: how to break the single top stream dependence
Entertainment companies that rely too much on a single artist will inevitably be accompanied by high risks behind high profits.
As mentioned in its prospectus, most of its revenue comes from artist management business. If we fail to maintain our relationships with artists and trainees or expand the number of artists and trainees we contract, our business, financial condition and results of operations may be materially and adversely affected.
Affected by the epidemic, entertainment variety shows and competition recordings, offline concerts, and business meeting activities have all been affected in recent years, and have been switched to online platform broadcasting. In 2021, affected by the "milk pouring incident", the talent show "Youth with You" was suddenly stopped by the Beijing Municipal Radio and Television Bureau, and then the Cyberspace Administration of China issued a "Qinglang" special action to rectify the bad atmosphere of the Internet, and major online video platforms also stopped launching similar talent shows.
And "star-making factories" such as Lehua Entertainment lost the channel of talent shows, and their star-making ability also declined. At the same time, its artists such as Ding Zeren and Li Zhequan have affected Lehua's market reputation due to frequent negative news, and the price Lehua paid to maintain revenue stability and keep Wang Yibo's contract increased: in August 2022, Wang Yibo renewed his contract with Lehua Entertainment until 2026.
According to entertainment media reports, or in order to increase Wang Yibo's "stability", the revenue sharing ratio of Wang Yibo and Lehua Entertainment has also changed from three and seven points in 2019 and 2020 to five and five points in 2021 and 2022.
In order to avoid the risk of relying on top artists and creating a new revenue model, Lehua Entertainment has also carried out a series of new business direction exploration.
In 2020, Lehua launched the digital artist group A-SOUL, catering to the current trend of virtual artists, and the gross profit margin of the company's pan-entertainment business increased from 56.5% in 2020 to 77.7% in 2021.
Source: Baidu Encyclopedia
At the same time, Lehua also launched a short video e-commerce business at the same time, opening an official live broadcast room "Lecheng STORE" on Douyin, mainly selling its artist album peripherals and endorsement products; And imitated Yang Tianzhen and began to build the founder Du Hua's personal IP live broadcast room.
It is not difficult to see that Lehua's series of explorations is to break the singleness of its own business, broaden the boundaries of the market and business, and reduce the risks of excessive dependence on a single artist. Before the next pillar business direction like Wang Yibo appears, how Lehua will continue to break the game is still a matter of much capital waiting to be seen.
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