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Golden Harvest's Director of Corporate Finance Winnie Mak

ORANGE SKY GOLDEN HARVEST Entertainment (Holdings) Ltd (HK: 1132) not only wants to boost distribution of quality feature films in Greater China and beyond, but more importantly it aims to take control of a significant number of cinema screens in the PRC.

Golden Harvest, a name closely associated with a reliable arsenal of blockbusters emanating from Hong Kong and Greater China over the decades, changed its name to Orange Sky Golden Harvest after Orange Sky became the largest shareholder in the group two years ago.

We often remember the stars and directors of memorable films, but a laundry list of some of Golden Harvest’s most noteworthy productions is a virtual Who’s Who of Greater China-based blockbusters, including the Teenage Mutant Ninja Turtles trilogy, the Shaolin Temple franchise, Fist of Fury, Way of the Dragon, Enter the Dragon, Rumble in the Bronx and Cannonball Run I & II.

Most of the above have been screened in Europe and North America due to their initial phenomenal success in East Asia.

Therefore, Orange Sky Golden Harvest is very eager to extend its reach up and down the film industry.

In a recent interview Ms. Winnie Mak, the company’s Director of Corporate Finance, NextInsight, Aries Consulting and a group of Greater China fund managers learned that Orange Sky was very serious about breaking out of its role as a producer and hoped to hold major stakes in the cinemas that brought the product to the ultimate client – the moviegoer.

“We are targeting 600 screens in mainland China from just 23 now, and a 15% market share there in three years,” Ms. Mak said.

Although the PRC was the target market going forward, primarily due to its impossible-to-ignore 1.3 bln-plus potential moviegoers, the company was also planning to increase its screencount in Taiwan to 86 by end-2009 from 77 now, and raise figures in Singapore and Hong Kong to 73 and 24, respectively, over the same period.

“We are not particular, the PRC cinemas we plan to control can be greenfield or acquired facilities,” she added.

Bourgeois box office bonanza beckoning

Anyone who has ever visited Taipei and had a few hours to spare – perhaps amidst one of the city’s notorious and seemingly daily downpours – will often be pointed in the direction of the swanky and ultramodern Warner Village complex near City Hall … a multi-screen movietown in the island’s capital city that Golden Harvest recently acquired.


The movie mecca’s luxurious layout, snugly nestled up against the mountains in the upscale Hsinyi District in Taipei, certainly helped inform the company’s decision to seek a buyout.

“We are seeking to bring moviegoers into more comfortable, attractive, upscale settings and seating. Our management believes these surroundings can attract higher level customers, and that will allow us to charge more at the ticket window,” Ms. Mak said.

Golden Harvest's film production activity has declined in recent years to the extent that they withdrew from filmmaking in 2003 to concentrate on film financing, distribution and cinema management in Hong Kong and the PRC.

However, earlier this year Orange Sky Golden Harvest announced their relaunch of filmmaking operations and previewed a new trailer set for movies in 2010.

  Stock Performance Chart for Orange Sky Golden Harvest Entertainment (Holdings) Limited
  
“We are now returning to
some film festivals to shop for potential box-office winners,” she said.

And in addition to its bread and butter of the 80s and 90s, ie: film production, the company saw huge potential in mainland China for companies willing to give hard-working, middle-class moviegoers a more amenable place to park themselves – and perhaps their starry-eyed dates as well – for 90 minutes or so, said Ms. Mak.

“In the PRC, if the number of per capita cinema visits per year was raised from the current 0.15 to one per year, then China would be the world’s No.3 market after the US and Japan,” she said.

For even the most casual cinemagoer in more developed markets like Hong Kong, Taiwan and Singapore, the idea that the average person only makes an average 0.15 movie theater visits per year is unimaginable.

And apparently, Orange Sky Golden Harvest is hoping they are right in their convictions, because that would mean China’s cinema space is grossly undertapped.

  
Orange Sky Golden HarvestYr-to-June 09Yr-to-June 08% change
Revenue (hkd)746.5 mln619.9 mln20%
Net profit81.8 mln10.7 mln664.4%
EPS44.3 cents5.2 cents-
  
She explained that of every 100 yuan spent at the cinema box office on movie tickets, 50% went to the cinema operator, 26% to the distributor, 13% to the film owner and tax collectors got the rest.

Other than the tax collection sector, Ms. Mak said Orange Sky Golden Harvest was eager to enter and get as much return on that 100 yuan movie ticket as possible, hence their graduation to the cinema business.

It was inevitable that a company hoping to boost control of the movie theater industry could avoid questions from inquiring journalists and fund managers regarding just how it planned to deal with the intense competition from illegal and unethical bootleggers of both homegrown and foreign films, which are readily and cheaply available to Chinese consumers, both on seemingly every street corner in the form of DVDs, or online via portals like Baidu, Sina and Tudou.

“We are targeting the upscale moviegoing public. Therefore, we are fully confident that there is still a huge demographic that fully appreciates the cinema experience over the computer-based imitation, and we fully intend to enhance that experience for paying customers,” Ms. Mak said.

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