China’s got talent

Yuehua files for an IPO but is it China’s answer to Ari Emanuel’s Endeavor?

Meng Meiqi-w

Meng Meiqi: one of the star clients of Yuehua Entertainment

Ari Emanuel founded Endeavor in 1995 and went on to establish himself as one of Hollywood’s most prominent agents, representing Oprah Winfrey, Martin Scorsese, Charlize Theron, Mark Wahlberg and Dwayne Johnson, to name but a few. He even became Donald Trump’s agent in 2010.

Endeavor became the first talent agency to go public in New York last year (as of this week its market value stands at $12 billion). That was Endeavor’s second listing attempt after the Beverly Hills-based company abandoned a $400 million IPO in 2019 due to weak investor demand.

Is it a case too of second time’s a charm as well for China’s talent agency YH Entertainment, which has been described by some as China’s answer to Endeavor? 

Last week, the agent, which represents a roster of Chinese celebrities like Wang Yibo and Meng Meiqi, filed for an IPO with the Hong Kong Stock Exchange. It is YH’s second flotation, after going public in 2015 on the NEEQ (the over-the-counter bourse was last year converted into the Beijing Stock Exchange). YH was then delisted three years later.

YH, which stands for Yuehua, was founded by businesswoman Du Hua, who has become something of a household name herself after appearing as a judge on the hugely popular reality TV competition Sisters Riding Waves. Like many of South Korea’s star management firms, YH trains aspiring teenage singers. Fan Chengcheng, younger brother of disgraced actress Fan Bingbing, was a Yuehua trainee before he appeared on the competition show Idol Producer in 2018 (he’s still under contract with YH). The company claims that proceeds from its Hong Kong IPO will be used to purchase training centres, improve operations, expand its music copyright library and make acquisitions.

According to the prospectus, YH’s revenue has been growing at more than 40% over the past three years, reaching Rmb1.3 billion ($204.67 million) in 2021. It has been profitable for three consecutive years at least. Net profit reached Rmb335 million last year with a profit margin of 47%. 

“Compared to the rest of the entertainment industry, that profit margin is strong,” 36Kr noted.

Aside from its core business as a talent agency, the Beijing-based company is also developing music-based intellectual properties and managing licences for variety shows – though those areas contribute no more than 10% of its revenue.

Like most agencies representing celebrities, YH is paid on a commission, with the rates depending on the talent. Take Wang Yibo, for instance. As of this month, the 24 year-old actor was under contract for 39 active endorsements, which include a portfolio of consumer brands ranging from China Unicom to luxury icon Chanel and German carmaker Audi. Some reckon that he alone might have contributed almost half of YH’s agency revenues.

YH’s celebrity clients make most of their money not from TV or film performances themselves but from brand endorsements. Commercial appearances like ads and commercials went from 59.8% of revenues in 2019 to 78.5% in 2021. On the other hand, “content services” went from 40.2% to 21.5% during the same period.

“It confirms the theory about idols: ‘idols don’t need memorable performances, they only need fans who are willing to pay’,” news site 36Kr commented.

YH’s listing comes at a tricky time for the industry. Beijing’s recent crackdown on the entertainment sector has been adversely affecting the income of TV and movie stars. On the other hand, the phenomenal success of some of Endeavor’s clients at the Beijing Winter Olympics last month (see WiC574) – for instance skier (Eileen) Gu Ailing has become the new darling of consumer brands in China – also have onlookers marvelling at the prospects for top talent agencies.

So why list in Hong Kong and not the A-share market? The chief reason is that a lot of entertainment stocks have either performed poorly or failed to receive approval to IPO on the mainland’s bourses. For instance, Bona Film, which took itself private from Nasdaq in 2016 to relist on the A-share market is still waiting for IPO approval. Other studios like Canxing Media, the producer behind the reality singing competition franchise Voice of China, also saw its IPO rejected by the Chinese regulators and had to look at a listing in Hong Kong instead.

Naturally, there are commercial concerns about an enterprise whose main product is to churn out trainees for future boy and girl bands – creations not known for a long shelf life to begin with. Worse, the fragility of that pipeline was also highlighted by the recent scandals in the industry, which led to idol competition shows being shut down on the Chinese government’s concerns over out-of-control fan cultures.

Another risk: once the artists have reached a certain level of fame, many of them face the temptation to branch out and start their own studio or management firm to save on agency commissions. Before Huanrui Century went public, it was the agent for a long roster of A-listers like Yang Yang, Yang Mi and Yang Zi. After its IPO, however, big artists left one by one.

“Han Geng’s contract will expire in May this year while Wang Yibo’s contract only has two years left, as is [that of] Meng Meiqi. Even if they can retain Wang, with the increasingly short shelf life of these idols, it is not enough to sustain a company. YH is now facing an awkward qing huang bu jie situation  [the proverb  means ‘the mature yellow autumn crop does not last until the green spring crop’],” was the verdict of Blue Whale Media. Fund managers have been warned…

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.