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Text | Kingfisher Capital

Earlier this year, some investors questioned the fact that the amount of entrusted wealth management disclosed in the 2017 annual report of Focus Media (002027.SZ) was not clearly listed in the balance sheet.

In response to this, the company stated that the entrusted wealth management in the 2017 annual report all came from its own funds and were mainly classified into other current assets based on their liquidity.

In 2017, Focus Media was under scrutiny and warned by regulatory authorities for its illegal plan to purchase financial products worth no more than 10 billion yuan. At the same time, the company's operating performance has been stuck in a growth bottleneck since 2017.

01

Financial management has disclosed information in violation of regulations

On March 1, 2024, according to the Tonghuashun Financial Research Center, an investor asked Focus Media, "The 2017 annual report disclosed that the entrusted financial management amounted to 484,429 million yuan. Where did the money come from? Which account was the entrusted financial management classified under? The corresponding amount of assets was not listed in the balance sheet."

In response to the question, Focus Media quickly replied that the entrusted wealth management in the company's 2017 annual report all came from its own funds and were mainly classified into other current assets based on their liquidity.

In fact, Focus Media has always been keen on buying financial products.

As early as June 7, 2017, the company and three senior executives including Chairman Jiang Nanchun received a warning letter from the Guangdong Securities Regulatory Bureau. At that time, the Guangdong Securities Regulatory Bureau pointed out that some interim report information of Focus Media was not disclosed, disclosed untimely and incompletely, and there were omissions in the disclosure of information in the 2015 annual report; "The company did not purchase bank financial products within the scope of authorization of the shareholders' meeting, and the company and related personnel were warned."

After receiving the warning letter, Focus Media issued a statement on the same day to explain that the money was intended for venture capital investment, with an investment limit of no more than 5 billion yuan for the cumulative balance that has not yet matured; no more than 10 billion yuan was intended to be used to purchase wealth management products; and 250 million yuan was intended to be used to establish an investment fund.

02

I love financial management

On December 21, 2012, the China Securities Regulatory Commission issued "Guidelines for the Supervision of Listed Companies No. 2 - Regulatory Requirements for the Management and Use of Funds Raised by Listed Companies", marking the beginning of financial management for listed companies.

According to IFIND statistics, the total amount of wealth management products purchased by A-share listed companies in 2012 was only 7.1 billion yuan. In 2013, the scale of funds invested by listed companies in the wealth management market surged to 166.7 billion yuan. Since then, the pace of "buying, buying, buying" by listed companies in the wealth management market has been unstoppable and has increased year by year. In 2014, the scale of A-share funds invested in wealth management increased to 347.4 billion yuan. In 2015, the scale of wealth management entrusted by listed companies exceeded 550 billion yuan, and climbed to 780.7 billion yuan in 2016. It reached a historical peak in 2017. According to IFIND statistics, as of December 19, 1,160 listed companies had entrusted a total of 1.1 trillion yuan in funds to invest in the wealth management market in 2017.

The enthusiasm of listed companies for wealth management has been accompanied by a rise in the yield of bank wealth management, and Focus Media is no exception. Since 2015, the balance of Focus Media's bank deposits has remained basically stable at around 3-4 billion yuan. In 2016, it began to supplement investment through money funds and bank and securities wealth management to increase returns. In 2020, it adjusted its investment structure again and allocated about 3 billion yuan for certificate of deposit/time deposit investment.

Previously, Focus Media has repeatedly stated that the company has reduced its external equity investment. In addition to using temporarily unused idle funds for the repurchase of company shares, it will mainly use the funds to purchase low-risk financial products from large commercial banks.

In 2023, Focus Media will have a total of more than 25 billion yuan in assets, including 3.493 billion yuan in cash, 5.361 billion yuan in trading financial assets, 110 million yuan in non-current assets due within one year, 2.13 billion yuan in long-term equity investments, 870 million yuan in other equity instrument investments, and 2.719 billion yuan in other non-current financial assets. It has basically formed an investment situation with bank deposits + certificates of deposit/time deposits as the base, and the rest through bank/brokerage channels.

03

Is Focus Media outdated?

Focus Media has a large amount of funds on its books and has purchased financial products, but in recent years it has not chosen to continue investing in screen advertising, which reveals a hidden concern about growth.

Public information shows that Focus Media has no physical products, and its main business is advertising, which is divided into "building media and cinema media" according to application scenarios. In 2023, the company's building media revenue was 11.119 billion yuan, accounting for 93.41% of its revenue, and cinema media revenue was 769 million yuan, accounting for 6.46%.

From the financial report data from 2017 to 2022, although the revenue growth rate in the first two years maintained a year-on-year growth rate of 17.7% and 21.12%, in 2019, the operating income fell by 16.6% year-on-year to 12.14 billion yuan, basically returning to the operating income level of 2017; net profit fell by 67.97% year-on-year to 1.86 billion yuan, hitting the lowest level since the company went public on the A-share market through a backdoor listing of Seven Up Holdings in 2015. In the three years of the epidemic from 2020 to 2022, Focus Media is unlikely to have much room for growth.

In the first quarter of 2024 alone, Focus Media achieved revenue of 2.73 billion yuan, a slight increase of 6% year-on-year; net profit attributable to shareholders of the parent was 1.04 billion yuan, a year-on-year increase of 10.5%.

Ultimately, the reason behind the sharp decline in both Focus Media’s revenue and net profit in the past few years is the depression of the entire advertising industry.

On the one hand, after previously competing with Xinchao Media for the market, the high-value advertising spots in office buildings and communities in first- and second-tier cities in China have basically been developed and divided up, making it difficult to bring in new growth space. At the same time, the advertising display rate of building media is already very high, and there is little room for further improvement.

On the other hand, thanks to the boom in the real estate industry in the past, new advertising spots have continued to emerge, and the market size of building media advertising has also risen. In the past, Focus Media has also carried out in-depth cooperation with real estate companies. Now, with the overall downward trend of the real estate industry, the risks faced by building media advertising are also not small.

Finally, there is the format innovation in the advertising industry.

Judging from the content, Xiaohongshu, Zhihu, and SoYoung have been patiently carrying out "content marketing". Users know that they are being "planted with grass" and generally will not be too disgusted. However, the "noise brainwashing" and "high-frequency stimulation" of elevator media may not necessarily equate the popularity gained with reputation. Such an advertising environment is not conducive to attracting and retaining advertisers, and will also overdraw the "intangible assets" of celebrities.

From a technological perspective, with the development of VR, AR, 3D and other technologies, a large number of Internet advertisements have now adopted AR formats, and many outdoor advertisements have also changed with the times. On Jianghan Road in Wuhan, naked-eye 3D billboards frequently attract people to stop and look, which is a powerful tool to attract attention.

Although Focus Media's attempt in the field of AI is to apply vertical models to the advertising field and train more professional advertising industry AI to help customers generate advertising ideas, formulate delivery strategies, etc., customers may not necessarily buy it.

Up to now, Focus Media's building media advertising still maintains the three major forms of posters, videos, and flat stickers, without any more obvious innovation, and still uses the "no choice" in closed spaces to attract attention. More importantly, with the rise of the e-commerce industry, offline consumption scenarios have begun to decrease, and even the remote office work model has begun to spread, which may mean the decline of the key attribute of "forced exposure" of elevator media.

As the absolute leader in the advertising industry, Focus Media still has a moat in elevator media, but the moat is not solid. With the fading of industry dividends and the impact of new media marketing, the future growth and stability of Focus Media will need to stand the test of time.

※This article is an original article from Kingfisher Capital. Please do not reprint without authorization.