Policy Tailwinds and Fresh Capital Push Printing and Publishing Stocks Higher Against the Market Trend

12 Private Equity Funds Move Into the Media Sector

The General Administration of Press and Publication has released the Guiding Opinions on Further Promoting the Development of the Press and Publication Industry (the “Opinions”), which sets out the priority tasks for the sector's next phase. Emerging formats such as digital publishing are folded into the document, whose scope covers traditional paper-based publishing in books, newspapers and periodicals; strategic emerging non-paper segments led by digital publishing; animation and games publishing; the printing and reproduction industry; and press and publication distribution and logistics — a reach that spans the entire publishing value chain.

At the same time, the Opinions state that the development of China's press and publication industry will continue to be driven by measures including guiding and regulating the orderly entry of non-public capital into the sector.

Under the influence of that policy, the media industry is drawing the attention of a growing number of private equity funds. In 2009, as domestic listed film and entertainment company Huayi Brothers debuted on ChiNext, several private equity funds had already raced into the cultural sector, with IDG, Sequoia, China Construction Bank and China Merchants Bank among the investors. Poly Bona, China Film Group, Shanghai Film Group and Enlight Media are all pushing ahead with capital market moves aimed at listing.

Reuters reported that some of the more influential funds acted earlier: Hony Capital, backed by Lenovo Group, had already raised a renminbi fund, which last year acquired a minority stake in Jiangsu Phoenix Publishing & Media Group Co., Ltd. — a company that was then preparing for an initial public offering (IPO). At least 12 private equity funds in China are now investing in media-related industries, among them a fund supported by China Construction Bank that is raising a renminbi fund worth several billion US dollars.

Activity is just as brisk on the A-share market. After Liaoning Publishing Group listed directly, Anhui Publishing Group completed its own listing through a backdoor route via Keda Innovation, while the asset restructuring between Jiangxi Publishing Group and Xinxin Co., Ltd. is proceeding at full speed. An earlier restructuring between Xi'an Qujiang Cultural Industry Investment Group and SEG Samsung did not succeed, yet it still shows how relentlessly media companies pursue access to the capital market.

Institutions and Hot Money Pile In

While the broader market shed 5 billion yuan in capital, the education and media sector pulled in a net 700 million yuan, putting it among the leading sectors. Gehua Cable, Alpha Animation, Oriental Pearl and Topway Video all attracted substantial inflows.

Trading data released by the Shenzhen Stock Exchange after the close shows that the force driving Alpha Animation to its daily limit was a joint push from institutions and hot money. Among the top five buying seats for the stock, an institutional seat was present, with net buying close to 60 million yuan; the three hot-money seats together bought close to 50 million yuan. The five selling seats, by contrast, unloaded less than 30 million yuan in total.

Other names investors may want to watch include Topway Video (paid channels and high-definition video-on-demand), Time Publishing (books and digital publishing), CTV Media (film and television production, with a CCTV background) and Dianguang Media (venture capital and cable television). Periodic opportunities in Huayi Brothers around the release of new films are also worth noting.

Analysts say that with government policy support in place, the media industry has now strung together several sessions of gains, and Alpha Animation — which only came to prominence yesterday — deserves investor attention, while Gehua Cable, previously the sector's gain leader, may also stay active. Some private equity sources, however, warn that short-term gains in individual media stocks have grown too large, leaving some exposed to profit-taking.

This is a 002-series stock with a tradable float of 40 million shares — an animation listed company with a distinctive concept. It intends to feed animation content creation with its toy business, then move into film, the internet (by building an online children's community) and related animation licensing, ultimately forming an industry chain anchored in animation content. The path runs from the “culturalization of industry” to the “industrialization of culture”, and from industry operator to content provider and finally to industry integrator. Earnings per share stood at 0.61 yuan in the first three quarters of last year, and full-year net profit is expected to grow 50%-60% year on year.

Institutions began building positions on its first day of listing, September 10 last year, and added twice more above 45 yuan. The third-quarter report issued 20 days later showed that three funds — China International Fund Management among them — held a combined 1.7298 million shares and took the top three circulating shareholder slots, with the top ten holders together controlling 8.70% of the tradable float. Since the fourth quarter of last year the stock has swung widely around a 44 yuan midpoint, and after yesterday's limit-up it is again near a post-listing high. A firm hold above 50 yuan would open up further upside.

Under the restructuring plan, the company will issue no more than 500 million shares to Jiangxi Publishing Group at 7.54 yuan apiece, acquiring its complete “editing, printing, distribution and supply” chain — publishing, printing, distribution, film and television production, trade, logistics, investment and cultural real estate, plus equity in subsidiary enterprises. The assets carry a preliminary valuation of as much as 3.2 billion yuan. Jiangxi Publishing, in effect, secures an overall listing for consideration of roughly 400 million yuan.

Jiangxi Publishing Group ranks fourth nationwide in the publishing industry, with 2009 sales of 4.6-4.7 billion yuan and profit of 278 million yuan, targeting 300 million yuan.

A long-term holder moved in early last year as the restructuring advanced, and the share price built a very clear long-term upward channel starting from 4 yuan. Institutions only stepped in near 9 yuan, after the price had doubled, with China Merchants Securities and Sino-Europe Securities appearing in last year's third-quarter report. The climb has continued since, given that the restructuring is not yet complete. In the near term, the company's sizable loss for 2009 is a drag on the share price; once the restructuring is done, however, the stock looks cheap on a relative basis across media names and is worth watching.

——This article is reprinted from China Packaging Network (pack.cn), original link: http://news.pack.cn/show-362222.html