China's Wanda Doubles Down on Cinema Construction Amid Pandemic

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Wanda chairman Wang Jianlin

Already China's largest movie theater operator, the company says it will build 1,258 new screens over the next two years. But the plan is contingent upon raising over $600 million from private investors, which could prove challenging amid the economic fallout of the coronavirus.

With movie theaters shuttered worldwide in the wake of the coronavirus pandemic, the theatrical film business has never looked more precarious. But that's not stopping China's largest exhibition company from doubling down on cinema construction.

Chinese billionaire Wang Jianlin's Dalian Wanda Group said in a recent company report that it plans to build 162 new cinemas with a total of 1,258 screens over the next two years. The bold construction target comes amid a slew of challenges for Wanda's publicly traded film unit, not all of them linked to the virus epidemic that has idled China's movie theaters since late January.

Wanda Film Holding's year-end report, released last week, shows that the company suffered a net profit loss of $668 million (RMB 4.73 billion) in 2019, with net cash flow generated from operating activities slipping 13.6 percent and total revenue falling 5.23 percent compared to 2018. With the coronavirus ravaging the theater business, Wanda says it sees its economic picture worsening considerably in 2020. The company previously reported that it expects a net loss of $77.9 million to $92.1 million in the first quarter of this year, compared to a net profit of $56.7 million over the same period of 2019.

A large portion of the poor performance in 2019 can be attributed to the consolidation of Wanda Group's film holdings. In early 2019, Wanda Cinema Line, the conglomerate's publicly traded movie theater business, completed its merger with Wanda Pictures, the group's film production and distribution entity. Wanda Film Holdings, as the merged entity is now called, said it would take a goodwill impairment charge of $635 million to $775 million (RMB 4.5 billion to RMB 5.5 billion) related to the disappointing performance of business lines at Wanda Pictures, including the unit's film website Mtime, which it acquired for $350 million in 2016. Wanda Film also had a disappointing 2019 on the production and distribution front, participating in several blockbusters as a minority investor but instigating fewer than usual as a lead producer.

China has been building new movie theaters at an astonishing pace for more than a decade, but recent data has hinted that the world's most populous nation may finally have enough screens to meet demand. The country continued building theaters at a rapid clip last year — estimated at 26.6 screens added per day — but average box office earnings per screen slid to the lowest level in more than 15 years. Growth in total admissions also stalled, climbing just 0.6 percent year-over-year, the lowest growth rate in more than a decade.

Wanda's bold expansion plans suggest Wang is looking past the pandemic and remains a firm believer in theatrical exhibition. The company grew to become China's largest and most successful movie theater operator thanks to Wanda Group's core commercial real estate business, famous across China for its signature "Wanda Plaza" mixed-use developments, which the company has successfully placed in prime locations in Chinese city centers large and small. Wanda also spares no expense on exhibition technology. Nearly half of Imax's screen count in China — 349 of just over 700 screens — are in Wanda cinemas. Competitive locations and high-quality build have always been the basis of Wanda Cinema Line's pitch.

Whether investors will bite this time around, with the coronavirus weighing mightily on the local industry and authorities offering no clear roadmap for the reopening of theaters, remains an open question. Wanda's year-end report revealed that it plans to finance its next wave of cinema construction through a non-public offering of A-shares to no more than 35 specifically targeted investors. Wanda Film said the fundraise would not exceed $614 million (RMB 4.35 billion), and $430 million (3.05 billion yuan) would go toward new cinema construction.