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Double Life: Film is brainchild of Zhejiang Golden Globe Pictures, a wholly-owned unit of Zhejiang Hua Ce

THE Chinese film and television production company that won the grand prize in Seoul's International Drama Awards 2009 is headed for a listing on ChiNext.

Zhejiang Hua Ce Media (华策影视) won for its series, Memoirs in China.

Now it is on an aggressive capital-raising plan to make greater inroads into the mainland movie market, notably on film production and movie theater expansion.


ChiNext, the country's home-grown answer to the Nasdaq exchange, is seeing more of its candidate enterprises being vetted for listing.

The eight month-old capital market, also sometimes referred to as the Shenzhen Growth Enterprise Market (GEM), now has eight potential listcos under consideration by China's securities watchdog.

Does this sudden uptick in approvals signify a less onerous entry barrier toward the 91-strong company board?

This could very well be so, according to the PRC press, as all eight are expected to receive relatively seamless approval from the China Securities Regulatory Commission (CSRC), the stock market overseer.

The newest candidates planning initial public offerings (IPOs) are:

Sunowe Photovoltaic, a Zhejiang-based manufacturer of monocrystalline solar modules, heavily invested by Hong Kong Yauchong International Investment Group (51 mln shares).

Beijing-based developer Jiayu Group, whose fingerprints are on some of the most innovative residential and commercial properties in China, including a heavy presence in Olympic-related construction (28 mln shares).

Shaanxi J&R Fire Fighting Co, a manufacturer and supplier based in northwest China which does exactly what its name suggests (20 mln shares.)

J&R holds 14 exclusive patents, and made a name for itself by developing the first highly efficient non-corrosive aerosol fire extinguishing agent applicable to electrical equipment.

"Since we were established in 1999, our business turnover has increased up to 12 mln usd at an average annual growth of 15%. We are now playing a predominant role in the Chinese domestic market with over 70% market share related to aerosol fire extinguishing devices and systems," the company said.

Henan-based Boai NKY Pharmaceuticals Ltd, one of the world's leading manufacturers of polymers for pharmaceuticals, personal care, household and industrial use (9 mln shares).

These four ChiNext candidates are widely expected to be approved for listing tomorrow, a sudden spike which suggests the CSRC is moving to speed up listings on the new capital board after a sustained period of tentativeness and additional restrictions on existing listcos.

Huace: Eying Upscale Cinemas

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Proceeds Aplenty: ChiNext IPOs produced quite a windfall

The newly expected members of ChiNext will join four others expected to be approved today, including Zhejiang Hua Ce Media.

Founded in 1993, the company based in the popular resort city of Hangzhou is applying to list 14.12 mln shares on ChiNext, with Essence Securities sponsoring the offering.

According to the company's IPO prospectus, Hua Ce is keen on boosting its television offerings in a market that is more volume than price driven.

It also warns in its prospectus of entrenched risks in the sector that potential investors should be wary of.

“Major hazards for IPO subscribers include the low-margin, highly-competitive television production business,” the company said.

It also offered investors exercise due diligence before buying into the IPO due to a headache that is finally coming home to roost in China – product piracy.

“We recognize that margin erosion for movie production contracts is a reality due to endemic problems of counterfeiting and other intellectual property rights infractions in the market.”

Hua Ce's wholly-owned unit, Zhejiang Golden Globe Pictures Co Ltd, is currently investing in and producing large-scale drama: Big Playground, directed by Ning Ying and starring Ge You. It is also working on potential blockbuster Mo-tse, and co-producing Top Imperial Doctor with a Korean partner.

“We are looking to work with many international partners on several film projects including Drafting Kingdom, Genetic Code, Broken Bridge, Combat in the Police Station, and Honor,” the company added.

The unit also produces and distributes television dramas. It already has under its belt a 30-episode drama Love in a Fallen City. Another 30-episode project successfully ran its course: Hidden Gun, which was co-produced with state-run media giant CCTV.

The company will continue to invest in cinemas across China. It has financed several hundred million yuan in capital, planning to construct 8-10 high-end five-star cinemas in 3-4 years time.

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Household name: TV & film producer Hua Ce will soon add its name to ChiNext

Concerning analyst opinion on the sudden raft of newcomers to ChiNext, the restrictions on companies' post-listing activities on ChiNext imposed by the CSRC have been characterized as somewhat whimsical and haphazard, leading to a lull in both applications and follow-up approvals.

The timidity from both sides can be generally understood given the high recent volatility and bearish A-share markets of late.

And the securities watchdog is very reluctant to see a repeat of the days of yore, back in late 2009 during the early period of ChiNext’s launch.

In November and December, when the first batches of listcos were approved, there were points in the early days when the average price-to-earnings ratio of the board entered three-digit realms.

Understandably, the CSRC has implemented new and updated regulations to produce more rational P/E ratios, including IPO proceeds’ restrictions introduced earlier this year.

The Commission has been struggling to write, implement and fine-tune adjustments to IPO-pricing mechanisms so as to temper excessively high valuations characteristic of early ChiNext listings which the watchdog fears could exacerbate existing asset bubbles.

The Shenzhen Stock Exchange, the ‘mother board’ of ChiNext, has also tightened regulations on what ways firms listed on the start-up board can utilize excess money garnered from IPOs.

The bourse found these refinements necessary as many listcos on ChiNext raised far more than their prospectuses aimed for, with a fair amount of firms seeing double their originally targeted proceeds.

One extreme example is medical products maker Guangzhou Improve, which listed on the new board in December of last year.

Its IPO was priced at nearly 109 times 2008 earnings, and it raised 465 mln yuan from the offer, well over four times the amount it initially targeted.

Analysts say that the sudden lowering of entry barriers to new listcos may signify that the CSRC is more confident that existing regulations will help prevent a new raft of triple-digit P/E companies on the board.

But they also say that investors would do well to watch the near-term performance of the new members and be wary of liquidity concerns should their valuations and IPO proceeds be far in excess of expectations.

See also: ANGST among ordinary investors of Shenzhen GEM stocks

 

 

 


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