China

Cultural Investment Holdings Plans to Acquire Two Film Companies for RMB 2.37 Bln

Summary:

  • Cultural Investment Holdings (600715.SS) plans to acquire two companies, namely, Yuekai Film Co. and Hongyu Tianrun Co., for a total of RMB 2.37 billion, as reported by Securities Times.

Why It Matters:

  • The deal values Yuekai Film Co. at RMB 1.67 billion, 21.75 times higher than its book value. The valuation of Hongyu Tianrun Co amounts to RMB 700 million, which is 13 times higher than its book value.
  • In order to protect investors’ interests, Yuekai Film Co. has promised a total RMB 762 million net profit for the years 2017-2020, and Hongyu Tianrun Co has promised a minimum net profit of RMB 280 million for the same four years.
  • Cultural Investment Holdings suggests that the acquisitions will boost the company’s profit in the film sector. However, the performance of the two target companies has not been appealing. The combined net profit of the two target companies for the first three quarters of 2017 was only RMB 23 million and therefore it is highly uncertain that either company will meet their promised net profit target.