What happened: According to the announcement in the Hong Kong Stock Exchange on the evening of 23 July 2023, China Ruyi's (the “Company”) wholly-owned subsidiary, Shanghai Ruyi Television Production Co., Ltd. (referred to as "Shanghai Ruyi"), entered into a share transfer agreement with Beijing Wanda Cultural Industry Group Co., Ltd. (referred to as "Beijing Cultural") on 20 July 2023, whereby Shanghai Ruyi agreed to acquire 49% of the shares of Beijing Wanda Investment Co., Ltd. (referred to as "Beijing Investment") held by Beijing Cultural for a consideration of RMB 2.262 bn. Currently, Beijing Investment holds 36.4% of the shares of Wanda Film Holding Co., Ltd. (listed on the Shenzhen Stock Exchange, stock code: 002739 SZ, referred to as "Wanda Film"). After the completion of the transaction, China Ruyi will indirectly hold investments in Wanda Film.
　　Comments and Views: Based on information from Tianyancha (天眼查), as of 24 July 2023, Beijing Investment held 36.4% of the shares of Wanda Film. According to two announcements made by Wanda Film on July 11 and July 17 regarding changes in equity, it is planned to transfer 8.26% and 8.14% of the shares of Wanda Film to Ms. Lili Lu and Hangzhou Zhenxi Investment Management Co., Ltd. through an agreement. As a result, after the completion of the equity transfer, Beijing Investment will hold 20% of the shares of Wanda Film, while China Ruyi will hold 49% of the shares of Beijing Investment, effectively acquiring 9.8% of the shares of Wanda Film through a cash consideration of RMB 2.262 bn. As of 25 July 2023, the total market value of Wanda Film was RMB approximately 29.7 bn, and the 9.8% shareholding is equivalent to approximately RMB 3 bn in market value. Despite experiencing a 22.4% YoY decline in total revenue and a net loss attributable to shareholders of RMB 1.92 bn in 2022, according to the earnings announcement released by Wanda Film on 4 July 2023, Wanda Film would achieve operating revenue of RMB 6.7 bn to RMB 6.9 bn in 1H23, representing a YoY growth of 35.6% to 39.7%, turning around from losses to profits. Considering the current robust recovery of the Chinese film industry and the positive impact of several blockbuster films released in the past half year, we are optimistic about the long-term development of the Chinese film industry and the business operations of Wanda Film. At this juncture, China Ruyi's acquisition of shares in Wanda Film has significant positive implications for China Ruyi's fundamentals and valuation.
　　Investment suggestions: China Ruyi currently has no intention of participating in the daily operations and management of Beijing Investment, which will not be considered as a subsidiary of China Ruyi, and its financial performance will not be consolidated into the Company's financial statements. However, based on Wanda Film's rich industry resources and strong market position, we believe that Wanda Film and China Ruyi can generate significant synergies in the industry's development. We maintain a "Buy" investment rating and will raise our target price in the next company report.