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Zebra Consumption Chen Biting

The game "Black Myth: Wukong" ignited an unprecedented craze for Chinese games, and the capital market also followed suit.

Among A-share listed companies, Huayi Brothers has the most rapid stock price increase. In 5 trading days, the cumulative increase was more than 70%, and the market value increased by nearly 3.4 billion yuan.

What is the relationship between Huayi Brothers and Black Myth: Wukong? It is only through indirect investment that it holds less than 1% of the shares of the game producer Youke Interactive.

The success of "Black Myth: Wukong" cannot change the fundamentals of Huayi Brothers' continued losses and financial difficulties.

The capital feast suddenly arrived

Any normal market value management, without conceptual speculation, will have a quick effect on stock price increase. Riding on the popularity of "Black Myth: Wukong", the stock prices of many listed companies have soared.

"Black Myth: Wukong" is an ARPG stand-alone game developed by Game Science. It is based on "Journey to the West" and tells the story of the player playing the role of "the man of destiny" who embarks on a journey to the West full of dangers and surprises in order to explore the truth of the legend of the past. The game took 6 years to produce and cost hundreds of millions of yuan. It is hailed as the first 3A-level game masterpiece in China.

There are currently four versions of the game: the digital standard version is 268 yuan, the digital deluxe version is 328 yuan, the physical deluxe version is 820 yuan, and the physical collector's edition is 1998 yuan. All of them are sold out.

On June 8, "Black Myth: Wukong" started pre-sale. In just one month, sales reached 1.2 million copies, with sales revenue approaching 400 million yuan.

At 10 am on August 20, the game was unlocked worldwide and officially launched. Just over two hours later, the number of concurrent online players on the Steam platform exceeded 1.404 million.

This feast for the gaming industry and gamers quickly spread to the capital market, and huge wealth suddenly fell upon Huayi Brothers (300027.SZ).

The company's stock price has reversed a six-month-long slump and has seen a sustained and rapid rise.

On August 14 and 15, the stock price rose by 13.95% and 13.78% respectively, and on August 16, it fell slightly. On Monday this week, it directly hit the daily limit. Yesterday, it opened slightly higher, and then quickly rose. In the afternoon, it hit the daily limit and closed at 2.94 yuan per share, up 19.03%, with a market value of 8.157 billion yuan. The total transaction volume for the day reached 2.07 billion yuan, and the turnover rate was as high as 30.63%.

In just five trading days, Huayi Brothers' stock price rose by more than 70%, and its market value increased by nearly 3.4 billion yuan. During this period, the total transaction volume was 4.69 billion yuan.

Yesterday, Zhejiang Publishing Group and CITIC Publishing both hit their daily limit. The former's subsidiary is the publisher of Black Myth: Wukong, responsible for game content review, publication application and publication number application, which is a one-time fee service; the latter will participate in the publication of Black Myth: Wukong setting collection, which is considered as the game's publication peripheral.

What is the relationship with "Black Myth: Wukong"?

In fact, Huayi Brothers has no direct connection with Black Myth: Wukong. If we have to make a connection, it is an indirect investor of the producer Game Science (Youke Interactive Technology Co., Ltd.).

Yuke Interactive was founded in 2014 by Feng Ji. In 2017, Hero Entertainment (now Hero Games) participated in the angel round of investment in Yuke Interactive through its subsidiary Hero Financial Holdings, and currently holds a 19% stake in the company.

Hero Entertainment and Huayi Brothers have a deep connection.

In 2015, the young and promising Ying Shuling founded Hero Entertainment, which was the first to propose the concept of mobile e-sports in China. Soon after the company was established, it went public on the New Third Board through a backdoor listing, becoming the first mobile e-sports stock.

Hero Entertainment's shareholder camp is full of stars, and well-known investment institutions such as Sequoia Capital, China Renaissance Capital, and Zhen Fund all rushed to enter the round A. In less than half a year, Wang Sicong's Pusi Capital invested over 100 million yuan and grabbed a share in the round B.

Before the C round of financing, Ying Shuling found Wang Zhongjun, the boss of Huayi Brothers, and the two sides agreed on the investment in just half an hour.

At that time, Huayi Brothers was in the limelight, with both money and the ability to make money, and also wanted to quickly make up for the shortcomings of the game through investment. Ying Shuling originally only wanted 1 billion, but Wang Zhongjun decided to increase the investment.

In November 2015, Huayi Brothers subscribed 27.722 million new shares of Hero Entertainment for RMB 1.9 billion, holding 20% ​​of the shares with an overall valuation of RMB 9.5 billion.

At that time, Hero Entertainment had just opened for business, but it made a performance commitment that the cumulative net profit would exceed 1.8 billion yuan in the next three years.

Huayi Brothers was extremely optimistic about Hero Entertainment and once planned to continue acquiring equity by issuing shares. However, the restructuring fell through due to difficulty in reaching an agreement on the transaction price.

From 2016 to 2018, Hero Entertainment lived up to expectations and achieved net profits of 504 million yuan, 915 million yuan, and 728 million yuan, respectively. However, just after the performance commitment period, the situation took a sharp turn for the worse. In 2019 and 2020, net profit dropped sharply to more than 30 million yuan.

Affected by this, Huayi Brothers set aside 1.251 billion yuan in impairment provisions for Hero Entertainment in 2019.

Hero Entertainment has always been pursuing the capital market and even moved its registered address to Yan'an. Later, it tried many times to go public on the A-share market through a backdoor listing, but ultimately failed.

When Huayi Brothers itself was in trouble, it gradually cleaned up external investments to recover funds. In 2021, it transferred its 15% stake in Hero Entertainment for 870 million yuan, with an overall valuation of 5.8 billion yuan, and held the remaining 5.17% stake. In total, Huayi Brothers indirectly holds less than 1% of Youke Interactive.

The fundamentals haven’t changed

Therefore, the success of "Black Myth: Wukong" will not directly affect the fundamentals of Huayi Brothers.

Huayi Brothers was once the most successful private film company in China. Huayi and Feng Xiaogang once dominated the Lunar New Year period. However, the company has been in decline for too long.

At its peak, the company was obsessed with capital operations and continued to expand its business through external mergers and acquisitions. But one careless move led to a sudden collapse in performance.

During this period, the film and television industry, as the absolute foundation of Huayi Brothers, began to weaken. Other peers took advantage of the situation and established their own characteristics and industry status through excellent works.

Bona achieved commercial success in mainstream films; Enlight Media ushered in the era of Chinese animation; Beijing Culture excelled in vision and repeatedly bet on hits... However, the audience's impression of Huayi Brothers is becoming increasingly vague.

With no works to support its income and intensive asset impairment, Huayi Brothers has been losing money for six consecutive years since 2018, with a total loss of nearly 8 billion yuan.

The last time Huayi Brothers became popular with a work was in 2020 with "Eight Hundred". After that, no more blockbuster films that Huayi Brothers controlled or invested in appeared on the screen.

Lack of good works - years of losses - lack of money - inability to invest in good works...it has almost formed a vicious cycle.

As of the end of 2023, the company's asset-liability ratio is as high as 79.06%, far higher than the average of 47.52% in the industry. Carrying huge debts, the annual financial expenses further erode profits. In 2023, the company's financial expenses will reach 133 million yuan, more than three times that of its listed peers, and the financial expense/revenue ratio will be as high as 19.94%, far higher than the average of 5.22% in the industry.

Not long ago, in order to repay the 350 million yuan loan to Alibaba Pictures, Huayi Brothers had to transfer 70% of Dongyang Meila's equity to repay the debt. The company's most valuable asset is Feng Xiaogang.

The actual controllers, brothers Wang Zhongjun and Wang Zhonglei, are temporarily unable to provide much support to the company. At present, almost all of their shares in listed companies have been pledged and frozen.

More than 10 days ago, Huayi Brothers launched a new round of private placement, planning to raise 1.03 billion yuan to be used for film and television projects and to supplement working capital.