Date
26 September 2017
Wanda Cinema, China's largest movie theater chain, is readying for a 2 billion yuan Shenzhen IPO. Photo: Bloomberg
Wanda Cinema, China's largest movie theater chain, is readying for a 2 billion yuan Shenzhen IPO. Photo: Bloomberg

Wanda Cinema: from supporting role to prime act

China’s securities regulator on Monday unveiled the draft prospectuses of a second batch of listing candidates, taking the total number of initial public offering hopefuls to 46, as authorities prepare to reopen the funding tap. Among the 18 proposals in the latest list is one from theater chain operator Wanda Cinema Line Corp.

A decade ago, Wanda Group chairman Wang Jianlin {王健林} — now the richest man on the mainland, according to Forbes — could have never envisioned that his business would have anything to do with motion pictures and cinema chains.

Back then his group was in top gear building more than a dozen of Wanda Plazas {萬達廣場} — the group’s flagship residential cum commercial developments — in a number of cities across the nation. Later Wang learnt that in order to attract more visitors to his malls, cinema screens are a must. So he approached Shanghai Film Group and its subsidiary cinema chain operator for cooperation proposals, but he was turned away. His alliance with Time Warner in 2005 was short-lived too. Those setbacks forced Wang to set up his own cinema chain in that year.

Wang is a lucky man as his new cinema business just came right in time, as Chinese cinemas have seen astounding growth in aggregate box office collections over the past ten years. Combined ticket sales grew from just 2 billion yuan (US$320 million) in 2005 to about 21.7 billion in 2013. And now, Wanda Cinema is no longer seen as a supplementary addition to Wanda Plazas, but a new pillar of income itself.

It currently runs 142 cinemas in 65 cities with 1,247 screens. Wanda Cinema raked in total box office collection of 3.2 billion yuan last year with a gross margin of 66 percent, according to its prospectus. It’s also interesting to see that sales of souvenirs and pop corn generated additional revenue of 478 million yuan. Wang told Time Weekly that Wanda Cinema’s net revenue per screen is three times the sector’s average level.

Wanda Cinema is seeking a Shenzhen IPO involving up to 60 million shares to raise 2 billion yuan. Analysts say the firm, which has been waiting for more than three years for its capital market foray, may lead a new wave of IPOs by filmmakers and entertainment upstarts.

The majority of Wanda cinemas are located within Wanda Plazas, meaning prime locations and negotiable rents. Leasing space from the parent’s other subsidiaries is categorized as frequent connected transactions, and in 2013 more than 222 million yuan was paid for a total leased area of 551,000 square meters at 85 Wanda Plazas throughout China. While soaring rents are eroding the profitability of many rivals, rental costs for Wanda Cinema makes up just 6.65 percent of its overall operational costs last year.

The unique site selection strategy to open the plazas in the central locations in lower-tier cities and in major commuter towns in the suburbs of Beijing and Shanghai has made Wanda Plazas the top shopping and recreation destinations within their respective areas, ensuring robust patronage — a total of more than 77.8 million people visited Wanda cinemas in 2013.

Another major selling point is the firm’s 50 billion yuan mega studio in Qingdao. The project, touted as the largest of its kind in the world, incorporates shooting bases, post-production facilities and recreational amenities. Construction of the studio began last year and media reports have said that Wanda Cinema has struck preliminary deals with Sony Pictures, Disney, 20th Century Fox and Lions Gate Entertainment. Thirty internationally-invested movies are expected to be filmed there after the studio’s planned inauguration in 2016.

Of the two billion yuan to be raised from the IPO, 1.6 billion yuan will be used to open another 50 cinemas in 43 cities to penetrate the market further. With Wang holding 68 percent of Wanda Cinema shares, the IPO could make the tycoon’s personal wealth shoot up further.

– Contact the writer at [email protected]

RC

EJ Insight writer

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