Huayi Bros. head talks about IPO

Awaiting a go-ahead from the securities regulator.

BEIJING - With seed money painstakingly accumulated over four years of taking odd jobs in the United States, Dennis Wang Zhongjun launched what is now China's biggest private movie production firm, headed for an IPO.

While foreign cinema businesses have had to scramble as consumers watch more movies at home, Wang sees huge opportunities for Huayi Brother Media Corp in China, where the numbers of cinemagoers keep growing.

"There should be no problem for us having a 50 percent growth rate in profits," Wang said in an interview with Reuters at his office full of trophies, sculptures and oil paintings.

"If we can do well in mergers, a growth rate of 100 percent is also possible."

Wang says Huayi Brothers, which sounds similar to Warner Brothers in Chinese, is confident it can add to its entertainment empire in China's expanding market.

It has applied for a stock market listing in China and is awaiting a go-ahead from the securities regulator.

Wang said Huayi has doubled profits and revenues every year in the last three years. Local media reported the company made 100 million yuan ($14.61 million) in net profit in 2007.

The growing number of cinemagoers in China -- despite widespread access to cheap DVDs -- has helped Huayi in past years and could be a boon if the trend continues.

"About 100 million people go to cinemas, though we have 1.3 billion people," Wang said. "The number could be 300 million or even 500 million in the coming five years."

China's film administration said box office revenue in the country was 3.3 billion yuan ($500 million) in 2007, small when compared with the roughly $10 billion domestic box office revenue in the United States.

But the China figure marked significant growth from 2.6 billion yuan in 2006 and 2.0 billion yuan in 2005.

Wang predicted China's box office revenue in 2008 would exceed 4 billion yuan, and Huayi is expected to take 500 million yuan from it.

About 180 million yuan of that came from the Forbidden Kingdom starring Jet Li and Jackie Chan, as well as an expected 200 million yuan from Chinese director Feng Xiaogang's comedy "Fei Cheng Wu Rao," which will hit screens at the end of this year.

Movies account for about a third of Huayi's total revenue, with another third from television production and the rest from music production, representing actors as agents and other operations.

Wang sees an opportunity for consolidation in the competitive film distribution and cinema sector, and says the company would use part of the capital to be raised in a planned initial public offering to finance a Huayi-branded cinema chain.

"There are too many cinema chains, and there should be somebody coming out to consolidate it," Wang said.

China has more than 30 cinema chains, and the top 10 cinema chains took in 80 percent of box office revenues in the first half of 2008. At the top, China Film Stella Theatre Chain took about 13 percent of total box office revenues, or 218 million yuan, from its 107 cinemas.

"We can spend two or three years to build up a cinema chain with box revenue of 2 billion yuan," Wang said. "In terms of money, one billion yuan would be enough."

He said Huayi is testing the market now with several cinemas using its own logo, and it plans to expand its chain via external mergers once it sets up a cinema management system.

"In the coming three to five years, Huayi will have the most complete value chain among China's entertainment companies, and one of the most influential firms," he said.

Trained in the People's Liberation Army, where he spent four years from 1976 to 1980, Wang was taught to be decisive.

Wang went to the United States in 1989 and spent the next four years studying and doing part-time work, including delivering food. Living frugally, he amassed $100,000.

Using that money, Wang returned to China in 1994 to set up an advertising company. He invested in a television situation comedy, "Psychologist's Office", that proved to be a hit.

"Like all China businesses, I entered this (entertainment) sector by luck instead of plan," Wang said.

He said a series of lucky breaks helped propel his first investment in a television series to a profitable run, which then presented more opportunities.

"When I tried to make movies, I met Feng Xiaogang, a talented and responsible director; when I started the business, I was lucky to have my young brother to look after the details. When my business developed, an investment banker appeared and told me how to use financial leverage."