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Yangtze Business Daily News● Yangtze Business Daily reporter Xu Jia

After its subsidiary increased its capital and expanded its shares and introduced an employee stock ownership platform, Huace Film & TV (300133.SZ) repurchased equity in two steps to complete equity incentives.

On the evening of July 24, Huace Film & TV disclosed its acquisition plan. The company plans to spend a total of RMB 87.4347 million with its wholly-owned subsidiary Zhejiang Film and Television Industry International Cooperation Experimental Zone Xixi Investment Management Co., Ltd. (hereinafter referred to as "Xixi Investment") to acquire 100% of the shares of Ningbo Yuanao Enterprise Management Partnership (Limited Partnership) (hereinafter referred to as "Ningbo Yuanao") and Ningbo Yuanhao Enterprise Management Partnership (Limited Partnership) (hereinafter referred to as "Ningbo Yuanhao").

Since Ningbo Yuanao and Ningbo Yuanhao's only investment is Shanghai Huajuhui Technology Co., Ltd. (hereinafter referred to as "Shanghai Huajuhui"), a wholly-owned subsidiary of Huace Film & TV, after the completion of this transaction, Huace Film & TV's equity in Shanghai Huajuhui increased from 82.8552% to 100%.

The Yangtze Business Daily reporter noted that Shanghai Huajuhui was originally a wholly-owned subsidiary of Huace Film & TV, which increased capital and expanded shares to introduce four major employee shareholding platforms in December 2021. In April 2023, Huace Film & TV repurchased Shanghai Huajuhui's equity from the employee shareholding platform for the first time.

Now that it has acquired shares of Shanghai Huajuhui again to achieve full control of it, Huace Film & TV intends to use equity to incentivize employees and promote the company's high-quality development.

A reporter from the Yangtze Business Daily noticed that in the first quarter, due to the decrease in TV drama sales, Huace Film & TV achieved operating income of 177 million yuan, a year-on-year decrease of 81.69%; net profit and non-net profit were 30.0138 million yuan and 1.4401 million yuan respectively, a year-on-year decrease of 79.58% and 98.8%.

Repurchased Shanghai Huajuhui's equity twice to achieve full control

According to the acquisition plan, Huace Film & TV intends to use its own funds of RMB 44,548,350 to acquire 82.8572% of Ningbo Yuanao and RMB 32,043,880 to acquire 87.6466% of Ningbo Yuanhao. At the same time, Huace Film & TV's wholly-owned subsidiary Xixi Investment will use its own funds of RMB 7,276,500 to acquire 17.1429% of Ningbo Yuanao and RMB 3,566,000 to acquire 12.3534% of Ningbo Yuanhao.

After the completion of the above transaction, Huace Film & TV and its wholly-owned subsidiary Xixi Investment will jointly hold 100% shares of Ningbo Yuanao and Ningbo Yuanhao, with a total transaction cost of RMB 87.4347 million.

As the target of this transaction, Ningbo Yuanao and Ningbo Yuanhao's only investment is Shanghai Huajuhui, a holding subsidiary of Huace Film & TV. The two companies hold 10.2052% and 6.9396% of the shares of Shanghai Huajuhui respectively.

Therefore, after the completion of this transaction, Ningbo Yuanao and Ningbo Yuanhao will become wholly-owned subsidiaries of Huace Film & TV, and Huace Film & TV's equity in Shanghai Huajuhui will increase to 100%.

The Yangtze Business Daily reporter noticed that Shanghai Huajuhui was originally a wholly-owned subsidiary of Huace Film & TV. In December 2021, Shanghai Huajuhui implemented capital increase and share expansion, and the four major employee shareholding platforms, Jingning Yuanhui, Jingning Yuanao, Jingning Yuanhao, and Jingning Yuanxin, increased their capital and acquired 40.4943% of the equity. At the same time, Huace Film & TV's shareholding ratio was diluted to 59.5057%.

In April 2023, Huace Film & TV repurchased the equity of Shanghai Huajuhui. The specific plan is that Huace Film & TV will use its own funds of RMB 61,757,640 and RMB 17,027,010 to acquire 99.3614% of Jingning Yuanhui and 98.3945% of Jingning Yuanxin. At the same time, Xixi Investment will acquire 0.6386% of Jingning Yuanhui and 1.6055% of Jingning Yuanxin for RMB 396,900 and RMB 277,830 respectively.

After the completion of the above transaction, Jingning Yuanhui and Jingning Yuanxin became wholly-owned subsidiaries of Huace Film & TV, and Huace Film & TV's equity in Shanghai Huajuhui increased from 59.5057% to 82.8552%.

It is worth noting that in this transaction, the combined valuation of all shareholders' equity of Shanghai Huajuhui was 730 million yuan, an increase of 359 million yuan from its book value, with an appreciation rate of 96.65%. In the capital increase in 2021 and the transaction in 2023, the valuation of all equity of Shanghai Huajuhuidong was approximately 249 million yuan and 620 million yuan, respectively.

Performance under temporary pressure, layout of artificial intelligence

By repurchasing Shanghai Huajuhui’s equity from the employee stock ownership platform in two steps, Huace Film & TV intends to use equity to incentivize employees and promote the company’s high-quality development.

Huace Film & TV stated that this transaction was based on the completion of a three-year (2021-2023) equity incentive performance appraisal by partners Ningbo Yuanao and Ningbo Yuanhao, and set up separate assessment indicators for the three-year (referring to 2024, 2025, and 2026) cumulative performance targets for core backbone employees, thereby achieving consistency in the interests of listed companies and employees, and implementing the company's "struggler-based" internal entrepreneurship mechanism to help the company's high-quality development.

Data shows that from 2021 to the first half of 2024, Shanghai Huajuhui achieved operating income of 156 million yuan, 167 million yuan, 173 million yuan, and 60.5768 million yuan, respectively, and net profits of 51.6835 million yuan, 65.5951 million yuan, 64.2952 million yuan, and 10.2589 million yuan. Among them, the net profit of Shanghai Huajuhui in 2023 fell slightly by 2% year-on-year.

According to Huace Film & TV, the main customers contributing to Shanghai Huajuhui's performance are major new media platforms. Since each new media platform generally reports its quota at the end of the year, the company's renewal orders are concentrated in the second half of the year. In addition, the exclusive sales rights for this year's dramas will start in the second half of the year, and the company's business strategy has shifted from traditional sales to a strong operation model to enhance the core competitiveness of copyright operations. Account sharing and settlement will also take place in the second half of the year. These factors have a combined impact. It is expected that Shanghai Huajuhui's performance in the second half of this year will be much higher than in the first half.

As a leading content creation company in China, Huace Film & TV has currently built a full industry ecosystem with TV series and film content as its core business, covering animation, copyright operation, international new media, short dramas, operator business (video ringtones, etc.), artist brokerage and other sub-sectors.

In 2023, Huace Film & TV achieved operating income of 2.267 billion yuan, a year-on-year decrease of 8.39%; net profit and non-net profit were 382 million yuan and 292 million yuan respectively, a year-on-year decrease of 5.08% and 3.24%. In terms of drama projects, Huace Film & TV completed pre-sale contracts of 1.981 billion yuan in 2023, with cumulative pre-sales of 3.798 billion yuan.

However, in the first quarter of this year, due to the decrease in TV drama sales, Huace Film & TV achieved operating income of 177 million yuan, a year-on-year decrease of 81.69%; net profit and non-net profit were 30.0138 million yuan and 1.4401 million yuan respectively, a year-on-year decrease of 79.58% and 98.8%.

It is worth noting that under the strategic layout of "film + technology", Huace Film & TV is actively expanding in the field of artificial intelligence. On the evening of July 24, Huace Film & TV also announced that its wholly-owned subsidiary Huace Investment plans to invest 100 million yuan to jointly establish Yancheng Zhihua Venture Capital Fund Partnership (Limited Partnership) (tentative name, the final name is subject to industrial and commercial registration, hereinafter referred to as "Yancheng Zhihua") with Hainan Zhiqiao Private Equity Fund Management Partnership (Limited Partnership) as a limited partner.

According to the plan, Yancheng Zhihua will directly or indirectly invest in the equity of Beijing Zhipu Huazhang Technology Co., Ltd. (hereinafter referred to as "Beijing Zhipu Huazhang"), which is a leading domestic general artificial intelligence large model company.

Huace Film & TV said that this investment will be in synergy with the company's main business, which will help accelerate the company's business layout in the field of artificial intelligence and the expansion of related industrial chains, enhance the company's overall competitiveness, and benefit the company's long-term and stable development.