Huayi Brothers plans $91 mil IPO

Huayi joins CFG in the public listing queue

HONG KONG -- One of China's top movie studios hopes to raise $91 million by going public on a new Nasdaq-style market - a move that reflects the increasing sophistication and rapid expansion of the country's entertainment industry.

The China Securities Regulatory Commission said in a statement it will on Sunday review Huayi Brothers Media Corp.'s application to list on the southern Shenzhen Stock Exchange's ChiNext, a trading board for smaller companies that is expected to launch later this year.
Huayi Brothers said in a prospectus issued by the Shenzhen bourse Thursday that it plans to sell shares for a 25% stake in the company, with the goal of raising 620 million yuan ($91 million) for movie and TV productions.

The amount is tiny by international standards, but shows the country's rapidly-growing entertainment industry is entering a new stage of development.

The prospectus marks a rare financial disclosure by Huayi Brothers, shedding light on the inner workings of one of the country's most successful entertainment companies.

Founded in 1994 by brothers Wang Zhongjun and Wang Zhonglei, its portfolio includes film and TV production and talent management. Its best known work in the West is the 2008 kung fu film "The Forbidden Kingdom," a co-production with Hollywood that was the first on-screen collaboration between action stars Jackie Chan and Jet Li.

Among its recent hits are the war film "Assembly" and the romantic comedy "If You Are the One," which made more than 300 million yuan ($44 million) at the Chinese box office. Huayi Brothers produced five top 10 hits in China from 2006 to 2008, or a 12% market share. China's leading state-run film company, China Film Group, enjoyed a 17% market share in the same period.

Huayi Brothers said its net profits have surged in recent years, nearly tripling from 23.6 million yuan ($3.5 million) in 2006 to 68 million yuan ($10 million) in 2008. It reported a profit of 31.6 million yuan ($4.6 million) for the first six months of 2009. Those figures pale in comparison to Hollywood studios: Time Warner's filmed entertainment divisions earned an operating income of $823 million in 2008.

But China's movie market is growing rapidly. Government statistics show the Chinese box office grew nearly fivefold from 920 million yuan in 2003 to 4.3 billion yuan ($630 million) in 2008 -- compared to $9.8 billion in the U.S. last year. In 2008, the number of movie screens jumped 16% to nearly 4,100, with an average of 1.6 screens built every day.

Television is also a promising growth area. While film accounted for nearly half of Huayi's revenue in 2006 and TV about 19%, the ratio has shifted significantly since then, with movies contributing about 28% in the first half of 2009 and TV 55%, according to the prospectus.

The company said it also wants to get into the film exhibition business, with a goal of building 15 multiplexes in five years.

Huayi Brothers said going public is an important first step in its ambition of becoming a top media company.

"Without the backing of a deep source of capital, there can't be a strong media industry. That's the consensus of professionals in the global media industry," the company said in the prospectus.

The new Shenzhen board is designed to nurture private companies that struggle to get financing in a system favoring big state enterprises. Although the size of the share offerings is dwarfed by those of much bigger companies on the main boards in Shenzhen and Shanghai, the exchange offers Chinese punters a welcome new investment option.

Foreign investors are still largely excluded from trading in Chinese currency-denominated shares.
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