Company profile

Orange Sky Golden Harvest Entertainment (OSGH) 11 February 2010

is principally engaged in the distribution, exhibition
and production of films in China, Hong Kong, Taiwan
and Singapore.
Golden Harvest is a leading cinema operator in Asia.
In recent years the Group has made a strategic move
to extend its cinema network to China and Taiwan
taking advantage of the gradual liberalization of the
film distribution and exhibition markets. The Group
launched its first brand name flagship multiplex in
Shenzhen Mixc mall which set a milestone for
modern multiplex design in China. Golden Harvest
also acquired the largest cinema chain in Taiwan
from Warner Brothers, renamed as Vie Show and
Orange Sky Golden Harvest (1132 HK)
currently has approximately 30% market share in Company Visit
Taiwan.
Film distribution is one of the Group’s core
businesses. The Group plays a key role in the Our take - China Box Office Success in the making
theatrical distribution of Chinese-language films in
Hong Kong and owns a film library of 140 films for
Reasons for visit:
global distribution. The Group also actively acquires
the distribution rights of quality independent films for
- We are looking to identify industries and sectors which will be able to
China, Hong Kong, Taiwan and Singapore. benefit from increasing penetration in Asia, rising disposable incomes
and ride the growth trend in consumer spending which is being promoted
Trade statistics by the Chinese central government.
Price: HK$ 0.97 - Given the enormous potential in China, the company’s expansion plans
52 week high: HK$ 1.41 (12/15/2009) and efforts to increase market share in the PRC is critical while
52 week low: HK$ 1.05 (08/13/2009) maintaining its income stream from its other existing markets i.e. Hong
Market cap: HK$ 2,135M
3-month avg daily value HK$ 6.3M Kong, Taiwan and Singapore.
Shares Outstanding: 2201.69M
Float: 633.76M
Catalysts:
Orange Sky vs. HSI 10-year 1. Near term - Earnings release (20 March 2010 expected). Look for
expanding margins and profitability on the back of improving economic
environment, year on year increase in number of blockbuster films during
the financial year and rise in average ticket price (ATP) due 3D films.
2. Medium term – Successful execution of the company’s extensive
expansion plan in the PRC. Golden Harvest is aiming to establish over
600 screens from the existing 32 screens within the next 3 years.
3. Successful placement of 340mn shares equivalent to approximately
15% of the outstanding shares pre-money. The additional funding would
enable it to roll out aggressive expansion plans in the PRC.
Orange Sky P/E trade chart 5-year 4. China’s gradual move to liberalize its domestic film industry and allow
more foreign films to enter the market.

Conclusion
IR of the company is excellent and numbers are clearly presented. We
are positive on the growth prospects of the film exhibition and distribution
industry in China. We believe that existing demand and future growth is
substantially larger than supply. This is evident in Golden Harvest’s
successful flagship GH-MIXC at the Mixc mall in Shenzhen which has
ranked as China’s highest box office single site cinema for 3 consecutive
Source: Bloomberg years and has captured a 19% market share in Shenzhen in FY09.

Management appears to have a clear focus and have the necessary

Quam Institutional Business Unit
GUY STILLE (Executive Director)
MICHAEL MAK (Executive Director)
ADRIAN GORNALL (Executive Director)
NICHOLAS LOW (Institutional Sales Executive)
VICONIA LIU (Research Analyst )
Quam Securities Company Limited
32/flr, Gloucester Tower, The Landmark
11 Pedder Street, Central, Hong Kong
Email: quamresearch@quamgroup.com
industry experience to successfully carry out the expansion plans. We
believe the 340mn share placement to fund its expansion in China will be
+852 2847 2242
successfully executed and this will be a further impetus for the
+852 2847 2218 company’s growth in China. Based on conservative estimates we expect
+852 2847 2270 FY2010 earnings to exhibit substantial growth translating to rising EPS.
+852 2847 2296 Even after the recent move up, we conclude that the equity is not
+852 2847 2299
excessively valued on a 2010 PER of 15.4X, based on the forecasts for
screen openings indicated by the company.

Hong Kong & Greater China 1 of 2

 11 February 2010

Key financials
RMB million Sales EBIT Net profit P/E
FY 2010 1,164 163.04 136.14 15.4
FY 2011 1,391 194.86 162.71 12.9
Source: Quam estimates
Key assumptions: 235 screens in operation by 2010 and 326 screens in operation by 2011 in China. Average
utilization of 35%. Average ticket price of RMB50.

Film and entertainment industry to see strong secular growth

China is one of the world’s fastest growing film markets as gross box office
grew 40% y-o-y reaching RMB6.21bn in 2009 but remains at an early
development stage. This leaves plenty of room for growth in terms of both
demand and supply. There are currently an estimated 4723 screens in China
and it is estimated that only a small proportion of those are modern screens
such as those developed by Golden Harvest.

Aggressive expansion in China while rest of Asia sees steady growth

Golden Harvest is taking the necessary and constructive steps to expand
their cinema (film exhibitions) business in the PRC by leveraging on the
nation’s thriving film entertainment market and growing disposable incomes.
The extensive cinema network will provide synergy by giving the company a
solid base for it to strengthen its film distribution business. In their drive to
capitalize on China’s CAGR Box Office growth of 12.5% between 2005 and
2009, Golden Harvest plans to have 600 screens in China within the next 3
years 350 of which have already has signed contracts or at negotiation stage.

The rest of Asia currently contributes approximately 90% of revenues and

although this proportion of revenue contribution is expected to decline, the
rest of Asia remains an important cash generating asset to the company.
Golden Harvest has a 45% market share in Singapore under the brand
Golden Village and a 32% market share in Taiwan under the brand Vie Show
Cinemas. Both markets continue to enjoy steady growth.

Strong marketing capability and modern design

Through its strong marketing capabilities and development of modern design
cinemas Golden Harvest has managed to secure above average fill rate of its
cinema halls. The higher fill rate has also been a very important bargaining
chip in negotiating rents with shopping mall landlords due to their ability to
attract customer traffic. Premise rents represent a substantial portion of box
office returns and the company typically signs 10 – 15 years leases with
landlords.

Disclaimer and Risk Statement

This document is published by Quam Securities Company Limited (“Quam Securities”), a licensed corporation (central entity number AAC557) regulated by the Securities and Futures Commission in
Hong Kong. This document is for distribution in Hong Kong only to persons who are “Professional Investors” as defined in Part 1 of Schedule 1 of Securities and Futures Ordinance (Cap 571) of Hong
Kong and any rules made thereunder. This document is not intended for distribution to or use by, any person or entity who is a citizen or resident of any jurisdiction where such distribution or use would
be contrary to applicable law or regulation within such jurisdiction. This document does not constitute an offer or a solicitation of an offer to buy or sell any securities. This document is circulated to
addresses solely and may not be reproduced or redistributed to any other person or published, in whole or in part, for any purpose. The research is based on information obtained from sources believed
to be reliable, but Quam Securities does not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without prior notice. Any
recommendation does not have regard to specific investment objectives, financial situation and particular needs of any specific addressee. Quam Securities accepts no liability whatsoever for any direct
or consequential loss arising from any use of this document. Quam Securities and its affiliates as well as persons associated with any of them from time to time may or may not have interests in the
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