On February 12, Capital Bank reported that on February 11, Special Art Culture Entertainment and Production (Holding) Co., Ltd. (hereinafter referred to as "Special Art Culture") once again submitted a prospectus to Hong Kong Stock Exchange , intending to list on the Hong Kong main board of .
It is worth mentioning that this is the second time that Teyi Culture has submitted to the two submissions on January 31 and August 12, 2019. The main intermediary teams of Teyi Culture's IPO are: Zhongzhou International is its exclusive sponsor; Deloitte is its auditor; Jiayuan and Qin Juezhong are their company's Chinese lawyers and their company's Hong Kong lawyers; Frost Sullivan is their independent industry consultant.
For the year ended March 31, 2019, Teyi Culture is the largest service provider of activities and live performance technology production and creative solutions in Hong Kong, specializing in concerts, and in 2018, Teyi Culture is one of the top ten concert organizers in Hong Kong in terms of the number of concerts organized. Since 1985, Special Art Culture has developed its business in technology production and creative solutions for the market. According to the Frost-Sullivan report, (i) for the year ended March 31, 2019, Teyi Culture is the largest service provider with a market share of approximately 33.0%; on the last practical date, Teyi Culture is the only comprehensive concert organizer in Hong Kong that is capable of providing technical production and creative solutions for large and super-large concert projects.
The history of Teyi Culture can be traced back to 1985, when one of the main operating subsidiaries of Teyi Culture, Art Energy Engineering, was established, and then Cai Jianhui launched the group's business. Teyi Culture has an internal technical team and a large inventory of performance equipment. It has always provided customers with a full range of technical production and creative solution services to realize their concepts, including providing creative design and concepts, designing practical execution plans, contacting venue rentals for settings, providing technical support for lighting systems, sound systems, rigging equipment, benches, auditoriums, lifting equipment and other special effect devices, providing special props and performance equipment, supervision and coordination of all technical matters in concert projects, and providing on-site installation and post-disassembly services.
Capital Bank learned that the scope of special art culture includes obtaining the right to performing artists’ concerts and programs, booking concert venues, arranging content production, publicity and promotion concerts, arranging concert sponsorship, investing in concerts, editing budgets, ticketing, arranging artists’ accommodation, coordinating logistics work arrangements (if necessary), and purchasing technical production and creative solution services; or special art culture assists the concert organizer to coordinate several work in concert projects. Teyi Culture also started its concert service business in 2019. At that time, Teyi Culture provided concert services to Chinese concert organizers and assisted it in coordinating the preparations of several concerts. The prospectus shows that in the shareholder structure before listing of Teyi Culture, the controlling shareholder was Cai Jianhui, who held 84.29% of the shares.
Teyi Culture's business operations can be simplified into two main business divisions, namely (i) providing technical production and creative solution services. During the track record period and until the last practical date, Teyi Culture participated in more than 600 concert projects, including more than 400 Hong Kong and non-Hong Kong artists and bands (such as BIGBANG, BLACKPINK, Jay Chou , Andy Lau , Rene Liu , Mayday and SupperMoment); and (ii) engaged in concert preparation business. Special Art Culture's work scope includes obtaining the right to performing artists' concerts and programs, booking concert venues, arranging content production, publicity and promotion concerts, arranging concert sponsorships, investing in concerts, editing budgets, ticketing, arranging artists' accommodation, coordinating logistics arrangements (if necessary), and purchasing technical production and creative solution services.
Teyi Culture generally adopts different pricing strategies for different services provided by the group. When it comes to providing technical production and creative solution services, Teyi Culture will adopt a market pricing model. Generally speaking, Special Art Culture estimates the price of special Art Culture projects based on multiple factors.During the track record period, the revenue mainly comes from (i) service fees for providing technical production and creative solution services; (ii) sales of concert tickets; (iii) concert sponsorship revenue; and (iv) concert service revenue.
Teyi Culture’s customers include but are not limited to concert organizers, concert audiences and concert sponsors. For the three years ended March 31, 2019, and for the six months ended September 30, 2019, the five major customers accounted for a total revenue of approximately 30.4%, 28.1%, 25.4% and 18.6%, respectively, while Teyi Culture's sales to its largest customers accounted for approximately 9.2%, 6.2%, 6.7% and 5.6% respectively during the same period. On September 30, 2019, the five major customers had business relationships with Teyi Culture for less than one year to more than 12 years.
Finance, in 2017, 2018 and as of March 30, 2019, Teyi Culture generated revenues of approximately HK$220, HK$263,000 and HK$305,000, respectively, with a compound annual growth rate of approximately 17.7%, which is mainly due to the increase in revenues of both business series; net profit remained stable during the same period, approximately HK$26.2 million, HK$28.3 million and approximately HK$18.7 million, respectively. For the six months ended September 30, 2019, Teyi Culture generated revenue of approximately HK$313 million; net profit for the same period was HK$21.918 million.
Capital State reminds that Teyi Culture's revenue generally comes from one-time commissioning cooperation in providing technical production and creative solution services and conducting concert preparation business. These commissioning cooperation is carried out on individual project benchmarks, and the increase or decrease in the number of project commissions may have an impact on financial performance.
The business division of Teyi Culture, that is, providing technical production and creative solution services and engaging in concert preparation business, is generally carried out according to the project benchmark. Accordingly, Teyi Culture charges (i) service fees derived from providing technical production and creative solution services; (ii) sales of concert tickets; (iii) concert sponsorship income; and (iv) concert service income.
Although Teyi Culture has successfully received several large-scale events and live performances regularly during the record period, most of the income of Teyi Culture comes from one-time commissioning cooperation. Teyi Culture's financial performance may be affected by Teyi Culture's ability to maintain business relationships with existing customers and obtain new projects, or to continuously establish new business relationships with new customers. In addition, setting up a concert stage involves risks, which may lead to personal injury, property damage or accidents. Therefore, the reputation of Teyi Culture may be damaged, and may even bear potential liability and face claims. If the existing insurance policy cannot be fully covered, Teyi Culture must use its own funds to compensate for the relevant losses, which may have a significant adverse impact on its financial status and operating performance.
Teyi Culture said that it is easy to have accidents when setting up a concert stage because (i)Teyi Culture engages in a variety of activities related to the installation and disassembly of performance equipment; (ii) The operation ofTeyi Culture may involve high-altitude work, operation and contact with electronic systems and electrical appliances, as well as lifting heavy objects; and (iii) Employees ofTeyi Culture may also need to work in venues that are not familiar with fire escape routes or potentially dangerous places. An accident or unfortunate accident may stop the concert, cause death or cause physical injury to the audience, performers, artists or employees, or cause serious damage to the performance equipment and property. Although Teyi Culture has provided safety training to employees and closely monitor the work of installation workers, Teyi Culture cannot guarantee that these measures can effectively prevent the risk of injury, nor does it guarantee that every worker will fully follow the operating steps. Regardless of any safety precautions taken, accidents may occur and personal injury claims against Teyi Culture will occur. During the record period, Special Art Culture recorded an accident in Hong Kong, and the mobile platform built by the subcontractor collapsed during the Hong Kong concert program schedule. If the insurance policy of Teyi Culture does not or is insufficient to cover the relevant claims, Teyi Culture may have to use its own funds to compensate for the relevant losses, thereby reducing the benefits and increasing costs. Successful claim of compensation from Teyi Culture may lead to damage to Teyi Culture's finance and reputation. Even if the claim is unsuccessful, the claim may create an adverse public image, and the defense may incur huge costs and may distract the company's management from time and attention.Therefore, Special Art Culture may suffer financial damage or damage to reputation in accidents involving setting up a concert stage, which may in turn have a significant adverse impact on financial conditions and operating performance.
Teyi Culture's investment in concerts organized by Teyi Culture accounts for the pure return/loss part of the sharing of the net return/loss part. The right to participate in the concert and the responsibility to participate in the concert are measured at fair value, while the special art culture must measure fair value from time to time. Capital State reminds that changes in fair value will affect the financial performance of Teyi Culture.
Teyi Culture prospectus pointed out that for the year ended March 31, 2017, the net fair value income of the right to participate in concert and the responsibility for concert participation was HK$1.2 million. For the years ended 31 March 2018 and 2019, and for the six months ended 30 September 2018 and 2019, the net loss of fair value of concert participation rights and concert participation liability was HK$4.3 million, HK$6 million, HK$6.8 million and HK$12.7 million, respectively. Concert investment is speculative and has inherent risks. The fair value measurement of the right to participate in concert and the responsibility to participate in concert is limited by uncertain factors that cannot be observed in the input data, mainly because of the estimated sales revenue of concert tickets and the cost of concert production by Teyi Culture. After considering multiple factors (including but not limited to the concert organizer’s track record, artist popularity and feasible seat count), Special Art Culture estimates the sales revenue of concert tickets and the cost of concert production. Therefore, before the relevant concerts are held, Special Art Culture cannot guarantee that the estimates are absolutely accurate and reflect the actual share/share of the pure return/loss part.
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