DBS: GHY Culture & Media Holding – Hold Target Price $0.43

Results Analysis: Boost from resumption of concerts

Results Highlights

• 1H22 in the red, below expectations. 1H22 revenue declined 53% y-o-y, to S$20.6m, mainly due to:

1. Decrease in revenue contribution from the TV programme and film production business segment. In 1H22, the group recognised revenue mainly in respect of three completed dramas and the sale of a script vs. two ongoing dramas, one short video, and two films in 1H21.
2. Decrease in revenue contribution from the “others” business segment, which mainly comprises talent management and costumes and props and make-up services, as a result of a decrease in the number of projects.

• Lower gross profit margin. The gross profit margin of 24.3% for 1H22 is lower than the 28.2% for 1H21, mainly due to COVID-19-related expenses.
• Net loss attributable to forex loss and delay in contract signings. GHY reported a net loss of S$1.8m, vs. a profit of S$3.4m in 1H21. This was attributable to:

1. Foreign exchange loss of S$2.7m that arose from the group’s significant operations in China due to the appreciation of the Singapore dollar against the Chinese renminbi. The group would have posted a net profit of S$0.9m for 1H22 if excluding the forex loss.
2. Delay in contract signings with customers in 1H22 due to tightened COVID-19 measures in China.

Outlook & Strategy

Positive developments: Resumption of concert production business, with upcoming concerts in FY22 and FY23. Pipeline includes:

1. Sold-out tickets for Jay Chou’s concerts to be held in Singapore and Malaysia in FY22 and January 2023, with ticket sales for Australia expected to commence in 3Q22.
2. Co-producer of concerts with well-known artistes Guns N’ Roses and Power Station (????) to be held in FY22, to capture the pent-up concert demand.
3. Expect resumption of concerts in China in 2023.

Shifting focus to short video production. The group is gradually shifting focus to short video production, riding on the success of its collaboration with Beijing Zitiao Network Technology, part of the ByteDance Group that operates Douyin (also known as TikTok). The group has completed three short videos in 1H22, and we can expect more productions going forward. We project 10 short videos for FY22F and 20 in FY23F. A short form video typically comprises about 20 to 30 episodes of at least 120 seconds each.

Earnings & Recommendation

Revised down FY22F/23F net earnings by 2%/30%. For the concert segment, we have factored in four concert productions in Singapore (two for Jay Chou, one for Guns N’ Roses, and one for Power Station) in FY22F. For FY23F, we expect the resumption of concerts in China to be likely in 2H23. Hence, we have assumed a total of nine concerts, out of which five would be in China.

For the drama and film production segment, we project a total of four and five dramas for FY22F and 23F respectively, vs. our previous assumption of four and six dramas. Margins are also expected to be lower, mainly due to COVID-related expenses. Hence, we have lowered the gross profit margin to 28%/30% in FY22F/23F, from 30%/32% previously.

Overall, net earnings for FY22F/23F were reduced by 2%/30%. For FY22F, the weakness in drama and film production is covered by the contribution from the concert segment. We did not factor in any contribution from concert production previously.

Maintain HOLD with lower TP of S$0.43. Our TP, which is based on the sum-of-the-parts valuation methodology, has reduced to S$0.43 (previously S$0.45).