CHINA’S RAPIDLY GROWING ranks of cinemagoers are producing big bucks for film producer Orange Sky Golden Harvest Entertainment (HK: 1132).
Already the top cinema operator in Singapore, Hong Kong and Taiwan, the Hong Kong-listed studio is hoping to make further inroads into the biggest regional prize of all – Mainland China – executives told a large gathering of investors in Shenzhen.
OSGH had a blockbuster first half, with January-June net profit soaring 208% year-on-year to 40.1 million hkd.
During the period, OSGH's revenue and gross profit rose 32% and 33%, respectively, to 741 million hkd and 436 million hkd.
Founded in 1970 and listed in Hong Kong since 1994, Orange Sky Golden Harvest has grown to become Greater China’s premier Chinese language film entertainment group focusing on three fundamental activities: film production/financing, film distribution and film exhibition via cinema operations.
As of now, OSGH operates 61 multiplexes with collectively 464 screens across Mainland China, Hong Kong, Taiwan and Singapore and is a leading distributor in its operating territories.
Given Mainland China’s 2.6 billion eyeballs and the growing popularity of cinema going in the country, it is only natural that OSGH was putting more if not most of its eggs into the PRC basket.
The film studio must be doing something right as its two-year earnings have enjoyed a spectacular CAGR of nearly 100%.
“We are full of confidence we can continue to grow,” said OSGH Executive Director Li Peisen.
Mr. Li comes from a rich background in broadcast media and entertainment.
He was an associate director of China TV Production Centre in 1994 and general manager of China Central Television (CCTV) in 1996.
In 1997, Mr. Li joined China International Television Corporation (TVC) as president and was involved in its corporate structuring, television production, as well as the domestic and global licensing business of Chinese television programs, having over 10 years of experience in film and television series production and acted as the producer of more than a thousand TV episodes.
He said OSGH was well-positioned to grab an even bigger share of China’s cinema space.
“We enjoy several competitive advantages that give us confidence going forward including the strength of our brand, our industry and government connections, as well as the rapid growth of the movie rental market,” Mr. Li said.
And lest investors feared OSGH was trending toward a low-profit “art house” film production and financing direction, shareholders should have no fear on that front.
“All production houses, cinema operators and film distributors need capital to survive and thrive. Therefore we strongly feel that robust, successful commercial films are crucial to our operations while also realizing the important of more artistic productions. We think both are needed,” he said.
Over the past three years, OSGH has been on a rapid-growth trajectory in Mainland China in terms of cinema expansion.
The number of screens the Hong Kong-listed movie studio could claim in the PRC rose from just 21 in December 2009 to over 250 today.
OSGH’s cinema count in the world’s most populous country jumped by seven in the first half to currently stand at 34.
Golden Harvest was aiming to operate over 70 cinemas in Mainland China by 2013, a growth rate of 100% from current levels.
And being a “vertically-integrated” entertainment firm from film production/financing to distribution and cinema management, OSGH was well poised to benefit from operations up and down the industry chain.
OSGH Executive Director and CEO Andrew Mao said the company was driven by the highest aspirations.
“Our goal is to become the No.1 film firm in Greater China and Asia,” he said.
"China's cinema business is experiencing the fastest growth rate in the region, driven by soaring box-office takings.
“People in China are becoming more willing to spend on superior movie watching experiences, with pulsating soundtracks, high-density resolution and 3D images.”
Mr. Mao added that OSGH’s goal was achievable given the company’s competitive strengths and the market potential in China for the filmmaking, distribution and cinema industry.
“With so much promising growth opportunities, we believe institutional investors will reap a win-win benefit should they decide to grow along with OSGH and the film industry in Greater China,” the CEO said.
Indeed, even a cursory inspection of the numbers suggests how much room the industry has for expansion in Mainland China in particular.
“We will continue to expand our cinema network in Mainland China to grasp these growth opportunities. In the meantime, OSGH will also be proactively launching its comprehensive Chinese language film business to make a larger contribution to the Chinese film industry."
OSGH is one of the leading theatrical exhibition companies and is one of the most rapidly-developing organizations in cinema operations in the PRC.
It has successfully partnered with leading property developers and asset management services companies to explore and build its multiplexes at prime locations and properties, and the Group will continue to expand its scope geographically on the mainland by building and running multiplexes successively in Beijing, Tianjin, Qingdao, Dalian, Chongqing, Nanjing, Changzhou, Nanchang, Nanning, and Zhongshan in the near future.
“We aim at building a nationwide network with about 600 screens in the coming two years, through organic expansion, mergers and acquisitions,” Mr. Mao said.
As for film production operations, the Group will reproduce the classic film "Fly Me to Polaris" in the second half of this year.
As the first reproduction to start up the Group's "Orange Sky Golden Harvest Reproduction of Classic Movie Series" this year, this new "Fly Me to Polaris" will be directed by the original director Jingle Ma and will adopt Sony super high resolution 4K digital filming techniques, a pioneering attempt in China.
The Group targets a grand release around Valentine's Day 2013.
Shortly after the investor conference in Shenzhen, it was reported that OSGH Chairman Wu Kebo had purchased a total of 1.2 million shares between September 17-18 at an average price of around 0.40 hkd per share, which would suggest a strong confidence in the firm by management.
Per capita movie viewing frequency in Mainland China was just around 0.3 times last year, significantly lower than the 4.3 times in the US.
Additionally, there were only 0.4 screens for each 100,000 Chinese citizens, compared to 12.7 in the US.
Furthermore, total box office receipts in the PRC increased by nearly 29% in 2011 to over 13 billion yuan, and grew at a CAGR of around 41% between 2007 and 2011.
With numbers like these, it is no wonder OSGH is expecting blockbuster-caliber success in Mainland China.
Orange Sky Golden Harvest Entertainment (Holdings) Ltd. (the "Group" or "OSGH") is the world's premier Chinese language film entertainment company, and is primarily engaged in film production, financing, distribution and exhibition. The Group currently operates 61 multiplexes with a total of 464 screens across Mainland China, Hong Kong, Taiwan and Singapore and is one of the leading distributors in its operating territories. The Group's cinema chains View Show in Taiwan and Golden Village in Singapore are the largest in their respective markets with market shares of around 43%.
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