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COMPANY / INDUSTRY NEWS

Analyst: Mark Po, CFA; Tel: (852) 3698 6318; markpo@chinastock.com.hk

CHINA MEDIA INDUSTRY UPDATE – Better box office figures to attract market attention.

Box office inflexion point. China’s overall box office revenue in Jan-May 2016 grew 23.2% YoY to RMB20.7bn, driven mainly by

31.7% growth in film admissions, while average ticket prices dropped 6.6% YoY. However, the growth rate slowed down substantially

in Apr and May 2016 vs. Q1 2016. After soft box office figures in Apr and May 2016, the market is expecting China box office figures

to reverse the trend in Jun 2016 with the release of two Hollywood blockbusters—X-Men: Apocalypse and Warcraft: The Beginning. X

-Men: Apocalypse was released on 3 Jun 2016 and generated RMB428m in box office receipts in the first four days of screening. This

represents good growth vs. the previous X-Men film, X-Men: Days of Future Past, which generated a total of RMB723m throughout all

of 2014. Thanks to the contribution of X-Men: Apocalypse, China’s overall box office takings grew 54% WoW to RMB740m last week

(from 30 May to 5 June), and bear in mind that X-Men: Apocalypse had only three days’ contribution in the week.

The market has high expectations for Warcraft: The Beginning, which will be released today (9 Jun in HK and 10 Jun in the US).

The main production company for Warcraft: The Beginning is Legendary Entertainment, which was acquired by Wanda Media. The

Warcraft producers are Charles Roven, Thomas Tull, Jon Jashni, Alex Gartner and Stuart Fenegan, the executive producers are Jil-

lian Share, Brent O’Connor, Michael Morhaime and Paul Sams, and the co-producers are Rob Pardo, Chris Metzen, Nick Carpenter

and Rebecca Steel Roven. Legendary Entertainment has four local equity partners: Tencent, CFG, Huayi Brothers and Taihe. World

of Warcraft is a massive, multiplayer, online role-playing game (MMORPG), released in 2004 by Blizzard Entertainment. It was the

fourth game set in the fantasy ‘Warcraft Universe’, which was first introduced in Warcraft: Orcs & Humans in 1994. The world of the

latest Warcraft movie is Azeroth, approximately four years after the events at the conclusion of Blizzard's previous Warcraft release,

Warcraft III: The Frozen Throne. Blizzard Entertainment first announced the game ‘World of Warcraft’ on 2 September 2001, and it

was released on 23 November 2004. With peak of 12m subscriptions in Oct 2010 and the final report of 5.5m subscriptions in Oct

2015, ‘World of Warcraft’ remains the world's most-subscribed MMORPG, and holds the Guinness World Record for the most popular

MMORPG by subscribers. In Jan 2014, it was announced that more than 100 million accounts had been created over the game's

lifetime.

Warcraft: The Beginning has 26 different Chinese brand partners involved in its marketing, which is larger than any other film by a

factor of at least two. The pre-sales figures of Warcraft: The Beginning are encouraging. According to industry estimates, the five-day

launch ranged from RMB800m-RMB1bn. According to the news flow, the Duncan Jones-helmed fantasy actioner had logged

RMB136m in advance ticket sales as of 6th June evening, which is currently the third-highest midnight pre-sales total of all time, just

behind Furious 7 and Avengers: Age Of Ultron. All 285 midnight Imax screenings were sold out, generating RMB5.5m, which tops

record holder Furious 7’s RMB5.4m. Given strong pre-sales figures, the market is speculating that Warcraft: The Beginning could

outpace Furious 7’s total box office receipts. Apart from release of X-Men: Apocalypse and Warcraft: The Beginning, other factors are

also supportive of China’s box office this week: (a) increasing demand during the Dragon Boat Festival Holiday from 9-11 June and

(b) demand from students after finishing their National College Entrance Examination on 9 June.

The share price performance of the film and movie names has been capped in recent couple of months by news flow on inflated box

office figures and soft box office figures in Apr and May 2016. We believe that the strong box office in China (thanks to X-Men: Apoca-

lypse and Warcraft: The Beginning) may attract market attention to China film-related names in the HK market, including iMax China

[1970.HK], OSGH [1132.HK], Nan Hai [0680.HK], Ali Pictures [1060.HK], SMI [0198.HK], SMI Culture [2366.HK] and China 3D Digital

Entertainment [8078.HK]. We still hold a cautious view on SMI given concerns about its accounting issues. Sentiment on iMax China

may turn more positive given the beginning of a very strong film pipeline this summer, which includes X-Men (released Jun 4),

Warcraft (Jun 8), Finding Dory (Jun 17), Independence Day (Jun 24), Teenage Mutant Ninja Turtles (Jul 2), The Legend of Tarzan

(TBD), and Star Trek Beyond (TBD). After a weak Q1 2016, the situation is expected to change starting in June, thanks to this strong

film pipeline. iMax China management plans to show 35 IMAX films in 2016 vs. 31 in 2015, and the Company has also signed con-

tracts for an additional 69 IMAX theatres YTD and is in talks to renew its contract with Wanda Cinema this year. Apart from iMax Chi-

na, OSGH is an interesting M&A target.

June 08, 2016

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COMPANY / INDUSTRY NEWS CHINA MEDIA INDUSTRY UPDATE – Better box office figures to attract market attention.

June 08, 2016

Figure 1: Warcarft Poster in HK

Sources: CGIS Research

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COMPANY / INDUSTRY NEWS CHINA MEDIA INDUSTRY UPDATE – Better box office figures to attract market attention.

June 08, 2016

Figure 2 Peer comparison

Sources: Bloomberg , CGIS Research

Ticker Company

Price Market Cap 2016F 2017F 2018F 2016F 2017F 2018F 2015 2016F 2015 2016F 2015 2016F 2015 2016F

Lcy US$m x x x x x x x x % % % % % %

198 HK Smi Holdings Group Ltd 0.72 1249.0 15.0 10.4 n.a. 7.3 5.6 7.4 1.9 1.7 8.4 11.8 4.6 5.2 1.5 1.0

2366 HK Smi Culture Group Holdings L 0.5 51.1 n.a. n.a. n.a. n.a. n.a. n.a. 0.9 n.a. n.a. n.a. -64.3 n.a. 0.0 n.a.

1060 HK Alibaba Pictures Group Ltd 1.9 6140.3 n.a. n.a. n.a. n.a. n.a. n.a. 2.5 n.a. 4.2 n.a. 3.7 n.a. 0.0 n.a.

1132 HK Orange Sky Golden Harvest En 0.5 169.5 24.0 17.1 n.a. 10.1 7.3 12.3 0.7 n.a. -10.8 3.5 0.1 1.9 0.0 n.a.

680 HK Nan Hai Corp Ltd 0.2 1855.9 n.a. n.a. n.a. n.a. n.a. n.a. 4.4 n.a. 7.5 n.a. 1.6 n.a. n.a. n.a.

8078 HK China 3D Digital Entertainme 0.9 434.2 n.a. n.a. n.a. n.a. n.a. n.a. 7.7 n.a. -35.6 n.a. -17.7 n.a. 0.0 n.a.

1003 HK Huanxi Media Group Ltd 2.1 633.1 n.a. n.a. n.a. n.a. n.a. n.a. 5.0 n.a. -14.0 n.a. -12.1 n.a. 0.0 n.a.

1970 HK Imax China Holding Inc 41.8 1912.2 31.3 24.2 19.6 21.0 16.3 13.3 12.1 8.3 -197.6 31.6 -97.4 23.1 0.0 0.5

Average 23.4 17.3 19.6 12.8 9.7 11.0 4.4 5.0 -34.0 15.6 -22.7 10.1 0.2 0.7

002739 CH Wanda Cinema Line Co Ltd-A 87.6 15652.4 53.8 37.8 26.0 32.7 23.2 15.8 11.3 10.7 19.6 21.7 11.8 12.4 0.2 0.5

300027 CH Huayi Brothers Media Corp-A 15.1 6393.1 35.0 29.9 23.2 30.8 25.2 22.8 4.3 4.1 13.0 10.2 6.6 6.3 n.a. 0.6

300133 CH Zhejiang Huace Film & Tv-A 16.7 4438.2 44.0 33.9 26.4 35.8 27.0 20.6 4.8 4.6 10.3 10.4 7.2 8.5 n.a. 0.2

300251 CH Beijing Enlight Media Co L-A 12.2 5448.9 51.5 37.7 26.4 46.8 34.7 25.2 5.2 4.7 8.0 9.4 7.6 8.0 n.a. 0.5

300291 CH Beijing Hualubaina Film & -A 24.1 2596.5 40.1 30.8 25.3 32.7 22.7 17.5 4.4 3.4 7.1 10.9 6.3 6.9 n.a. 0.5

300336 CH Shanghai New Culture Media-A 25.8 2113.9 35.1 24.9 19.8 26.4 13.9 11.1 5.2 4.5 13.5 14.5 6.9 10.1 n.a. 0.7

002071 CH Great Wall Movie And Tele-A 14.1 1127.1 n.a. n.a. n.a. n.a. n.a. n.a. 7.6 n.a. 22.9 n.a. 10.4 n.a. n.a. n.a.

002292 CH Alpha Group-A 31.2 6211.5 60.6 45.8 32.0 49.3 38.2 25.8 9.1 9.3 17.6 16.5 8.3 12.4 n.a. 0.2

300104 CH Leshi Internet Information-A 53.3 15061.8 107.5 68.1 46.0 31.0 22.4 17.5 24.3 16.5 16.2 19.3 4.3 4.9 n.a. 0.1

Average 53.5 38.6 28.1 35.7 25.9 19.5 8.5 7.2 14.2 14.1 7.7 8.7 0.2 0.4

IMAX US Imax Corp 32.5 2219.4 30.7 24.6 21.6 13.8 11.8 10.7 3.7 3.6 11.1 9.4 8.4 8.3 0.0 n.a.

079160 KS Cj Cgv Co Ltd 115000.0 2104.1 35.7 27.5 21.9 13.5 11.5 10.1 5.7 5.0 12.9 14.9 4.2 4.8 n.a. 0.3

MAJOR TB Major Cineplex Group Pcl 31.8 804.2 23.9 20.5 19.4 12.6 11.4 11.1 4.2 4.2 18.1 18.2 8.5 8.5 n.a. 3.7

Average 30.1 24.2 21.0 13.3 11.6 10.6 4.5 4.3 14.1 14.2 7.0 7.2 0.0 2.0

PE EV/EBITDA P/B ROE ROA Div yield

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BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :