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Yangtze Business Daily News● Yangtze Business Daily reporter Shen Yourong

After terminating its private placement four years ago, Huayi Brothers (300027.SZ) launched a new round of private placement.

On the evening of August 9, Huayi Brothers issued an announcement to terminate the planned private placement in 2020. At the same time, the company launched a new round of private placement, intending to issue shares to specific objects, raising no more than 1.029 billion yuan for film and television project construction and replenishment of working capital.

In recent years, Huayi Brothers has been under great operating pressure. In the six years from 2018 to 2023, the company's operating income continued to decline, and the net profit attributable to the parent company's shareholders (hereinafter referred to as "net profit") continued to lose money. In the first quarter of this year, the company still lost 18.56 million yuan.

At present, the company has reserved some projects, including "749 Bureau" directed by Lu Chuan, "Mermaid 2" directed by Stephen Chow, etc.

Huayi Brothers is under great financial pressure. As of the end of 2023, the company's asset-liability ratio was 79.06%, and its financial expenses for the year were 133 million yuan.

In the secondary market, since 2016, Huayi Brothers' stock price has continued to fluctuate and fall. The closing price on August 9 this year was 1.74 yuan per share, and the market value was only about 4.8 billion yuan.

What has attracted much attention is that the brothers Wang Zhongjun and Wang Zhonglei, the actual controllers of Huayi Brothers, have frequently reduced their holdings, with a total cash out of nearly 1.8 billion yuan. Currently, all the company shares held by the brothers have been frozen.

Seeking additional capital increase to enhance liquidity

Huayi Brothers has another big move.

On the evening of August 9, Huayi Brothers announced that it would terminate its previously planned private placement.

The private placement began on April 28, 2020. The private placement plan disclosed at that time was that the company planned to issue shares to specific objects, raising no more than 2.29 billion yuan, which would be used to supplement working capital and repay loans after deducting the issuance costs. The issuance targets this time are Alibaba Pictures, Tencent Computer, Xiangshan Dacheng Tianxia, ​​Yuyuan Shares, Minghe Group, Xintai Life Insurance, Sanli Jingkong, and Shandong Jingda. All issuance targets subscribed in cash.

The market originally thought that the private placement could be completed smoothly, but the result was unexpected. In the following four years, Huayi Brothers revised the private placement plan seven times.

On January 30 this year, Huayi Brothers disclosed the seventh revised draft of the fixed increase plan. After the adjustment, the company plans to issue no more than 555 million shares and raise no more than 821 million yuan. After deducting the issuance expenses, the funds raised will be used for film and television drama and short drama projects and to supplement working capital. Among them, the funds raised will be used to supplement working capital by about 245 million yuan.

The amount of funds raised after the seventh revision has shrunk significantly compared to the initial planned amount of funds raised.

The company said that after comprehensive consideration of many factors such as the current capital market policy changes, the company's development plan and the market financing environment, the decision was made after full communication and careful analysis with all relevant parties, and it would not have a significant adverse impact on the company's normal production and operation activities, and would not harm the interests of the company and all shareholders, especially small and medium-sized shareholders.

While terminating the planned increase in capital four years ago, Huayi Brothers launched a new round of increase in capital. According to the latest disclosed increase in capital plan, the company intends to issue shares to no more than 35 specific issuers, with the number of shares issued not exceeding 777 million shares and the total amount of funds raised not exceeding 1.029 billion yuan.

Of the 1.029 billion yuan raised this time, about 720 million yuan will be used for the layout of film and television projects, and the other 309 million yuan will be used to supplement working capital.

The company said that the use of raised funds to supplement working capital is to meet the company's liquidity needs, optimize capital structure and reduce debt repayment pressure.

Huayi Brothers is indeed under increasing financial pressure. From the end of 2021 to the end of 2023, the company's asset-liability ratio was 64.02%, 72.37%, and 79.06%, respectively. At the end of 2023, the company had 232 million yuan in cash, 495 million yuan in short-term loans, 426 million yuan in non-current liabilities due within one year, and 160 million yuan in long-term loans. The total long-term and short-term debts amounted to 1.081 billion yuan, far higher than the cash.

In 2023, the company's financial expenses were 133 million yuan.

When to start profit expectation test

China's film and television industry is showing signs of recovery, but Huayi Brothers has not yet entered a profit-making period.

Since 2023, the film and television industry has gradually recovered. Shanghai Film's net profit in 2023 and the first quarter of this year continued to be positive and increased significantly. Light Media made 425 million yuan in the first quarter of this year, and Tangde Film and Television also turned losses into profits in the first quarter of this year. Wanda Film expects to make a profit of 100 million to 130 million yuan in the first half of this year.

Data from Lighthouse Professional Edition shows that as of 18:57 on August 10, the total box office (including pre-sales) for the 2024 summer season (June-August) exceeded 9 billion yuan.

However, Huayi Brothers' operating performance has not yet shown signs of recovery.

In the first quarter of this year, the company's operating income was 95.215 million yuan, a year-on-year decrease of 59.20%; the net profit was -18.56 million yuan, a year-on-year increase of 76.76%.

Huayi Brothers was founded in 1994 and listed on the Shenzhen Stock Exchange's Growth Enterprise Market in 2009. It is known as "China's No. 1 film and television entertainment stock."

In the film and television industry, Huayi Brothers is an enterprise that cannot be ignored. Huayi Brothers was originally an advertising company. In 1997, by chance, it participated in the investment of the TV series "Psychological Clinic", which was a great success. In the same year, "Party A and Party B" directed by Feng Xiaogang was released, setting off a nationwide movie-watching trend. Since then, the company has been tied to Feng Xiaogang and has successively invested in many hit films such as "See You Tomorrow", "Endless", "A World Without Thieves", "Assembly", "If You Are the One", and "Private Tailor".

In the film and television industry, Huayi Brothers has produced many high-quality works, and recruited Wang Jinghua, the top agent in Beijing at the time, who brought in popular stars such as Li Bingbing and Ren Quan. Movie stars such as Huang Xiaoming, Chen Kun, and Zhou Xun have also had connections with Huayi Brothers.

Huayi Brothers' operating performance was also good at one point. After years of sustained growth, in 2017, the company's operating income and net profit were 3.946 billion yuan and 828 million yuan respectively, both record highs.

However, Huayi Brothers has been on a downward trend since 2018, with operating results continuing to suffer losses. Of course, this is related to the market environment.

From 2018 to 2022, the company's operating income was RMB 3.814 billion, RMB 2.244 billion, RMB 1.5 billion, RMB 1.399 billion, and RMB 402 million, respectively, and its net profit was a loss of RMB 1.169 billion, RMB 3.978 billion, RMB 1.048 billion, RMB 246 million, and RMB 982 million, respectively. In 2023, the company's operating income was RMB 666 million, a year-on-year increase of 65.59%; its net profit was a loss of RMB 666 million, a year-on-year reduction of 45.08%.

The above data shows that the company has suffered losses for six consecutive years from 2018 to 2023.

In the secondary market, Huayi Brothers' stock price has continued to fluctuate and fall since 2016. As of August 9 this year, the stock price was only 1.74 yuan per share, with a market value of about 4.8 billion yuan.

Wang Zhongjun and Wang Zhonglei are the actual controllers of Huayi Brothers. Since 2013, the two brothers have frequently reduced their holdings. According to rough estimates, the cumulative cash out is nearly 1.8 billion yuan.

At present, all the shares of Huayi Brothers held by the Wang Zhongjun brother have been frozen by the court.

What has attracted much attention is how Huayi Brothers can get out of the predicament. In this private placement, the company will use part of the raised funds for film and television projects, focus on its main business, tap into high-quality film and television resource reserves, follow the industry development orientation, and enhance its competitiveness.

Huayi Brothers has participated in and incubated many film projects. "749 Bureau" directed by Lu Chuan, "Mermaid 2" directed by Stephen Chow, and "Volunteers: Heroes Attack 2" directed by Chen Kaige and starring Zhu Yilong, Zhang Zifeng, and Xin Baiqing have all entered the post-production stage. The company has also prepared and participated in the investment of TV series such as "The Antique Bureau Mid-Game: The Plundered Treasure List", "Spring Comes to the Starry River", "The Verdict", and "Police Eagle". "That Year Hong Kong Was Burning in the Snow", "Double Hero Detectives: The Fierce Bandits", and "The Five Immortals' Strange Stories" are in the early preparation stage.

It remains to be seen when Huayi Brothers can get rid of its loss-making predicament and enter a period of profitability.