Tencent-backed Entertainment Plus, China’s largest movie ticketing platform, applies for US$1 billion Hong Kong IPO

Entertainment Plus, China’s biggest online movie ticketing platform, has applied to the Hong Kong stock exchange for an initial public offering. But the company, which helped to fund last year’s Transformers: The Last Knight and is backed by Tencent Holdings and Meituan Dianping, said it had been making losses and might continue to report declines in the future.

Media reports have suggested the company, valued at 20 billion yuan (US$2.92 billion) in its last funding round in November, was looking to raise about US$1 billion.

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“We may not be able to become profitable in the near future – or at all,” Entertainment Plus said in an application prospectus submitted on Monday. “In addition, we expect our costs and other operating expenses to increase as we expand our business.”

Entertainment Plus is a movie related online platform where people can buy tickets and review films. The company enjoys a 60.9 per cent market share, according to iResearch Consulting Group, which measures online audiences in China. Its Maoyan Pro app is the most popular app among professionals in China’s entertainment industry, according to iResearch. The app’s average monthly active users reached 133.5 million in the first half of 2018.

But Entertainment Plus incurred a cash outflow of 447.4 million yuan in the six months to June end. its losses before income tax worsened to 217.2 million yuan, up from a loss of 69 million yuan for the same period a year ago. Its earnings before other losses, depreciation and amortisation expenses also worsened to minus 93.1 million yuan in the six months to June end from minus 66.4 million yuan in the same period a year ago.

According to Entertainment Plus’s application, its shareholding structure includes Wang Chang-tian, who has an indirect 48.8 per cent interest in the company’s issued share capital through Vibrant Wide (28.77 per cent) and Hong Kong Pictures International (20.03 per cent), which is in turn owned by film producer Beijing Enlight Media. Shares in Enlight Media jumped by 3.8 per cent to 8.50 yuan in Shenzhen on Tuesday.

Chinese internet giant Tencent owns a 16.27 per cent stake, while Meituan, the country’s largest group buying and restaurants review service, owns an 8.56 per cent stake. Beijing Weiyin Shidai owns a 20.62 per cent stake while Zheng Zhi-hao, Entertainment Plus’s chief executive, owns 2 per cent.

Entertainment Plus’s application prospectus also includes 35 pages on risks related to its business. Having started only in 2013, it said it had only a “limited operating history in a dynamic market”, which made it difficult for it to evaluate its prospects.

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China’s entertainment sector is the second-largest in the world, with a market size of 1.28 trillion yuan in 2017. Its growth, however, may be subject to various factors including uncertainties around relevant laws and regulations.

Overall, the market is predicted to grow to 3.22 trillion yuan in 2022, representing a compound annual growth rate of 20.2 per cent from 2017, outpacing the growth of the global industry, according to iResearch.

Entertainment Plus also said it may not be able to fully replicate its success across different entertainment formats given its lack of track record in new markets. Strong market players had a competitive edge in these markets and can conduct their businesses more effectively, it said.

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The joint sponsors of the listing are Bank of America Merrill Lynch, Morgan Stanley and China Renaissance. The proceeds from the IPO will be used to enhance Entertainment Plus’s integrated platform capabilities and for technological infrastructure, as well as for potential investment and acquisitions. In 2017, it recorded a impairment of goodwill as a result of its acquisition of rival platform Weiying. It said there was a risk of potential failure in successfully integrating the operations of its acquisitions, which could adversely affect its finances.