Deutsche Bank Markets Research
Rating Company Date 24 July 2015 Buy Songcheng Forecast Change Asia Performance China Reuters Bloomberg Exchange Ticker Price at 24 Jul 2015 (CNY) 66.50 Consumer 300144.SZ 300144 CS SHZ 300144 Price target - 12mth (CNY) 79.00 Hotels / Leisure / 52-week range (CNY) 95.58 - 23.97 Gaming Shenzhen Index 2,462
Leader to consolida te the market Tallan Zhou Karen Tang Research Analyst Research Analyst (+852) 2203 6464 (+852) 2203 6141 We expect core earnings to grow 65% in 1H15 [email protected] [email protected] We reiterate our Buy rating on Songcheng, and raise our target price to RMB79 to reflect its strong growth in performance show, active acquisitions, and fast new project development under an asset-light model. We expect Songcheng's Key changes 1H15 core earnings to grow 65% yoy, supported by strong performance of the Price target 73.00 to 79.00 ↑ 8.2% Romantic Show in Sanya, Lijiang, and Jiuzhaigou. Songcheng is due to report Sales (FYE) 2,068 to 1,792 ↓ -13.3% 1H15 earnings on 6 August. Op prof 41.2 to 44.6 ↑ 8.2% We adjust 2015 earnings down as Six Room will only be combined in 2H15 margin (FYE) We tweaked down our 2015 earnings by 6.5% mainly because Six Room’s Net profit 676.2 to 632.4 ↓ -6.5% (FYE) profit contribution should happen in 2H15. However, we increased our Source: Deutsche Bank earnings forecast for 2016 by 6% to reflect new Romantic Show of Mount Tai to open in 2H15 and Mystery of Tibet, a newly acquired performance show in Price/price relative Jiuzhaigou. 100 Asset-light model for future expansion 80 Songcheng has announced the launch of its fifth Romantic Show in Tai’an by 60 the end of July 2015. The company adopts an asset-light model for this new 40 show as it license the operation to Taishan Grant Theater. We like the move 20 and believe Songcheng can leverage its developed brand equity and achieve 0 faster expansion under the asset-light model. 7/13 1/14 7/14 1/15 Valuation and risks Songcheng Performanc Shenzhen Index (Rebased) We derive a target price of RMB79 based on a DCF valuation. The stock is currently trading at 45x our 2016E core earnings. Excluding the valuation of Six Performance (%) 1m 3m 12m Rooms, Songcheng’s offline performance is currently trading at 39x 2016 PER, Absolute -13.0 13.9 180.8 which implies a PEG ratio of only 0.7x. Key downside risks include decline in Shenzhen Index -16.7 4.3 114.2 domestic tourists, rising competition, safety incidents, and delay in new project Source: Deutsche Bank development.
Forecasts And Ratios Year End Dec 31 2013A 2014A 2015E 2016E 2017E Sales (CNYm) 678.7 935.1 1,792.5 2,860.2 3,621.4 EBITDA (CNYm) 468.8 614.0 1,018.7 1,426.0 1,774.3 Reported EPS FD(CNY) 0.55 0.65 1.05 1.50 1.91 DB EPS FD(CNY) 0.50 0.62 1.02 1.47 1.89 OLD DB EPS FD(CNY) 0.50 0.62 1.10 1.47 1.82 % Change 0.0% 0.0% -6.6% 0.4% 3.6% DB EPS growth (%) 24.2 23.5 64.7 43.7 28.3 PER (x) 31.7 40.0 65.0 45.2 35.2 EV/EBITDA (x) 17.1 20.9 35.8 25.1 19.7 DPS (net) (CNY) 0.10 0.15 0.26 0.37 0.48 Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
______Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.
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Hotels / Leisure / Gaming Songcheng Performance
Model updated:24 July 2015 Fiscal year end 31-Dec 2012 2013 2014 2015E 2016E 2017E
Running the numbers Financial Summary Asia DB EPS (CNY) 0.41 0.50 0.62 1.02 1.47 1.89 Reported EPS (CNY) 0.46 0.55 0.65 1.05 1.50 1.91 China DPS (CNY) 0.15 0.10 0.15 0.26 0.37 0.48 BVPS (CNY) 5.2 5.6 6.2 9.1 10.3 11.9 Hotels / Leisure / Gaming Weighted average shares (m) 558 558 558 603 618 618 Songcheng Performance Average market cap (CNYm) 7,610 8,894 13,883 37,092 37,092 37,092 Enterprise value (CNYm) 6,261 8,035 12,806 36,441 35,727 34,961 Reuters: 300144.SZ Bloomberg: 300144 CS Valuation Metrics P/E (DB) (x) 33.7 31.7 40.0 65.0 45.2 35.2 Buy P/E (Reported) (x) 29.7 28.8 38.4 63.4 44.5 34.8 Price (24 Jul 15) CNY 66.50 P/BV (x) 2.43 3.41 4.88 7.30 6.43 5.59
Target Price CNY 79.00 FCF Yield (%) nm nm 0.5 1.6 2.1 2.4 Dividend Yield (%) 1.1 0.6 0.6 0.4 0.6 0.7 52 Week range CNY 23.97 - 95.58 EV/Sales (x) 10.7 11.8 13.7 20.3 12.5 9.7 Market Cap (m) CNYm 37,092 EV/EBITDA (x) 16.4 17.1 20.9 35.8 25.1 19.7 EV/EBIT (x) 21.9 22.6 28.3 45.6 30.1 23.1 USDm 5,973 Income Statement (CNYm) Company Profile Sales revenue 586 679 935 1,792 2,860 3,621 No.1 China cultural performance company Gross profit 408 481 628 1,156 1,794 2,272 EBITDA 382 469 614 1,019 1,426 1,774 Depreciation 80 94 128 184 194 201 Amortisation 16 20 33 35 47 61 EBIT 286 355 453 800 1,185 1,512 Net interest income(expense) 13 15 12 16 9 20 Associates/affiliates 0 0 0 0 0 0 Exceptionals/extraordinaries 0 0 0 0 0 0 Other pre-tax income/(expense) 42 48 26 19 19 19 Profit before tax 341 418 491 835 1,214 1,551 Price Performance Income tax expense 85 110 127 196 279 356 Minorities 0 0 4 7 10 12 100 Other post-tax income/(expense) 0 0 0 0 0 0 80 Net profit 257 308 361 632 925 1,183
60 DB adjustments (including dilution) -31 -28 -14 -15 -15 -15 40 DB Net profit 226 281 347 618 910 1,168 20 Cash Flow (CNYm) 0 Jul 13 Oct 13Jan 14Apr 14Jul 14 Oct 14Jan 15Apr 15 Cash flow from operations 396 429 528 907 1,187 1,289 Net Capex -504 -604 -464 -285 -315 -292 Songcheng Performance Free cash flow -108 -174 64 622 872 997 Shenzhen Index (Rebased) Equity raised/(bought back) 0 21 20 650 0 0 Margin Trends Dividends paid -74 -83 -56 -84 -158 -231 Net inc/(dec) in borrowings -160 -40 -30 0 0 0 70 Other investing/financing cash flows -2 -242 117 -1,614 0 0 Net cash flow -343 -519 115 -425 714 766 60 Change in working capital -20 27 53 112 97 -61
50 Balance Sheet (CNYm) Cash and other liquid assets 1,424 905 1,020 595 1,309 2,075 40 Tangible fixed assets 1,004 1,503 1,873 1,940 1,967 1,939 12 13 14 15E 16E 17E Goodwill/intangible assets 684 668 729 3,344 3,416 3,510 EBITDA Margin EBIT Margin Associates/investments 0 0 126 126 126 126
Other assets 87 380 94 144 204 270 Growth & Profitability Total assets 3,199 3,456 3,842 6,149 7,022 7,920 Interest bearing debt 30 0 0 0 0 0 100 20 Other liabilities 236 273 328 448 554 501 80 15 Total liabilities 266 273 328 448 554 501 60 Shareholders' equity 2,887 3,137 3,444 5,631 6,398 7,349 10 Minorities 45 46 70 70 70 70 40 5 Total shareholders' equity 2,932 3,182 3,514 5,701 6,468 7,419 20 Net debt -1,394 -905 -1,020 -595 -1,309 -2,075 0 0 12 13 14 15E 16E 17E Key Company Metrics Sales growth (%) 16.2 15.8 37.8 91.7 59.6 26.6 Sales growth (LHS) ROE (RHS)
DB EPS growth (%) 7.7 24.2 23.5 64.7 43.7 28.3 Solvency EBITDA Margin (%) 65.1 69.1 65.7 56.8 49.9 49.0 EBIT Margin (%) 48.8 52.3 48.4 44.6 41.4 41.8 0 Payout ratio (%) 32.4 18.1 23.2 25.0 25.0 25.0 -10 ROE (%) 9.2 10.2 11.0 13.9 15.4 17.2 Capex/sales (%) 85.9 89.0 49.6 15.9 11.0 8.1 -20 Capex/depreciation (x) 5.3 5.3 2.9 1.3 1.3 1.1 -30 Net debt/equity (%) -47.5 -28.4 -29.0 -10.4 -20.2 -28.0 -40 Net interest cover (x) nm nm nm nm nm nm
-50 Source: Company data, Deutsche Bank estimates 12 13 14 15E 16E 17E
Net debt/equity (LHS) Net interest cover (RHS)
Tallan Zhou +852 2203 6464 [email protected]
Page 2 Deutsche Bank AG/Hong Kong
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Strong 1H15 earnings growth
We expect 65% earnings growth for Songcheng without factoring in contribution from Six Rooms
Songcheng’s 1H15 earnings growth is strong: 1) comparison base is different: both Romantic Show of Lijiang and Jiuzhaigou were launched in March and May 2014, respectively; 2) Romantic Show of Sanya and Hangzhou continued to see high growth in 1H15 due to Songcheng’s increasing brand equity in China’s performance show market – the company entered the top 10 theme park group in the globe in the 2014 AECOM report.
We expect core net profit to increase 65% yoy to RMB263m in 1H15, and core EPS to come in at RMB0.47.
We believe overall revenue will improve 53% yoy to RMB598m, driven mainly by its successful replication of Romantic Show in Lijiang, Jiuzhaigou and Sanya.
Songcheng should see slight improvement in margin, due to a more favorable product mix (i.e. higher contribution from culture shows vs. Hangzhou theme parks), in our view. Figure 1: 1H15 preview RMB m 1Q14A 1Q15A yoy% 2Q14A 2Q15E yoy% 1H14A 1H15E yoy% Revenue 136 215 58% 255 382 50% 391 598 53% - 6 rooms - - na - - na - - na -Songcheng Performance 136 215 58% 255 382 50% 391 598 53% Gross profit 90 139 54% 193 303 57% 283 443 56% SG&A (32) (37) 17% (43) (66) 53% (75) (103) 37% EBIT 58 102 75% 149 237 59% 207 339 64% Pre-tax profit 66 122 84% 167 243 46% 233 365 57% Net profit 50 96 91% 123 182 48% 173 277 60% Core net profit 46 81 75% 113 182 61% 159 263 65% Core EPS (RMB) 0.08 0.15 75% 0.20 0.30 49% 0.29 0.45 57% Source: Deutsche Bank estimates Note: core net profit and core EPS excluding non-operating income/(expense)
Figure 2: 2015 preview RMB m 1H14 1H15E yoy% 2H14 2H15E yoy% 2014 2015E yoy% Revenue 391 598 53% 544 1,195 119% 935 1,792 92% - 6 rooms - - na - 391 na - 391 na -Songcheng Performance 391 598 53% 544 804 48% 935 1,402 50% Gross profit 283 443 56% 345 713 107% 628 1,156 84% SG&A (75) (103) 37% (99) (253) 156% (174) (356) 105% EBIT 207 339 64% 246 460 87% 453 800 77% Pre-tax profit 233 365 57% 258 469 82% 491 835 70% Net profit 173 277 60% 188 355 89% 361 632 75% Core net profit 159 263 65% 187 354 89% 347 618 78% Core EPS (RMB) 0.29 0.45 57% 0.34 0.57 71% 0.62 1.02 65% Source: Deutsche Bank estimates Note: core net profit and core EPS excluding non-operating income/(expense)
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Consolidating the market
Songcheng’s consolidation in 1H15
In March 2015, Songcheng acquired Six Room, a web-based show platform, at a consideration of RMB2.6bn. The company announced that it has received the approval from China Securities Regulatory Commission (CSRC), and expects to see earnings contribution from Six Rooms from 2H15.
In April 2015, Songcheng acquired 60% of Jiuzhaigou Rongzhong’erjia Culture Media (九寨沟县容中尔甲文化传播) at RMB87m, and we expect its Mystery of Tibet (藏迷) in Jiuzhaigou Valley to contribute to Songcheng’s earnings in 2H15.
In July 2015, Songcheng acquired 20% in Zhejiang Send Intelligent (浙 江深大智能科技), a company specialized in smart tourism and smart tourism attraction management. Send Intelligent has more than 700 customers including nearly 100 5A scenic spots. The acquisition should help accelerate the development of Songcheng Dumuqiao, the company’s online travel platform.
Figure 3: Songcheng’s development in 2015 Date Company Ownership Investment Revenue Implied Net profit Implied Location Business area (RMBm) (2014, RMBm) 2014 P/S (x) (2014, RMBm) 2014 P/E (x) Acquisition Mar-15 Six Rooms (六间房) 100% 2,602 446 6 63 41 Beijing Web-based show platform Apr-15 Jiuzhaigou 60% 87 17 8 2 76 Jiuzhaigou, Culture show Rongzhong’erjia Sichuan performance Culture Media (九寨沟 县容中尔甲文化传播) Jul-15 Zhejiang Send 20% 139 70 10 12 59 Zhejiang O2O smart tourism Intelligent (浙江深大智 platform 能科技) Establish new subsidiary May-15 Fuzhou Romantic 100% 150 na na na na Fuzhou, Culture show Show Tourism Fujian performance Performance (福州千古 情旅游演艺发展) Jul-15 Tai'an Songcheng 100% 20 na na na na Tai'an, Culture show Performance (泰安宋 Shandong performance 城演艺发展) Source: Company data, Deutsche Bank
Songcheng’s strategy is to expand on asset-light model
As we mentioned in our initiation report, we believe Songcheng’s success so far can be attributable to 1) the focus on building culture show projects in famous tourism cities, 2) the ability to replicate its shows across various destinations; and 3) the professional team that helped build Songcheng’s brand equity.
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Under its “Songcheng model”, the company has self-developed four shows, in Hangzhou (opened in 1997), Sanya (opened in September 2013), Lijiang (opened in March 2014), and Jiuzhaigou (opened in May 2014). We believe Songcheng has built its brand equity through these self-developed culture shows, and is now able to leverage its brand reputation to expand on an asset- light model
Through acquisition – Mystery of Tibet (藏迷) To further enhance its market leading position, Songcheng acquired 60% stake in Jiuzhaigou Rongzhong’erjia Culture Media (九寨沟县容中尔甲文化传播) at RMB87m in April 2015.
The acquirer was a direct competitor of Songcheng, which performs Mystery of Tibet in Jiuzhaigou Valley. Mystery of Tibet is directed by Yang Liping, one of the most famous cultural dancer and choreographer in China; and the show generated RMB17m revenue and RMB1.9m net profit in 2014.
Through licensing – Romantic Show of Mount Tai The fifth romantic show, Romantic Show of Tai’an, will start performing by the end of July 2015 in Taishan Grand Theater. Taishan Grand Theater is located near Mount Tai, which is one of the “Five Great Mountains (五岳)” and a AAAAA scenic spot in China. Mount Tai is also certified as a place of World Natural Heritage and World Cultural Heritage by the UNESCO; it attracted 5.47m visitors in 2014.
Different from the previous four shows, Songcheng licensed the Romantic Show of Mount Tai to Taishan Grand Theater (with 1,073 seats), which allows the company to operate under an asset-light model.
Under the traditional “Songcheng model,” the company invested RMB350m in the Tai’an project. As the company licensed out its performance show and operates under the asset-light model, only RMB20m investment is now needed.
Figure 4: Songcheng’s investment Investment (RMB m) Traditional "Songcheng model" Romantic Show of Sanya 490 Romantic Show of Lijiang 250 Romantic Show of Jiuzhaigou 176 Romantic Show of Mount Tai 350 Romantic Show of Ashima 80 Romantic Show of Wuyishan 100 Asset-light model Tai'an Songcheng Performance 20 Source: Deutsche Bank
To expand on asset-light model Currently, Songcheng has three culture shows in the pipeline: Romantic Show of Ashima, Wuyishan, and Fuzhou. We believe the company could replicate its asset-light model if the Romantic Show of Mount Tai proves to be a success. Songcheng is also likely to acquire other culture shows in popular tourism destinations for faster market expansion.
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We believe an asset-light model will further support Songcheng’s ROE to increase, and expect its ROE to improve from 11% in 2014 to 17.2% in 2017E as shown in the figure below.
Figure 5: Songcheng ROE, 2012-2017E
ROE (%)
19.0 17.2 17.0 15.4 15.0 13.9
13.0 11.0 11.0 10.2 9.2 9.0
7.0
5.0 2012 2013 2014 2015E 2016E 2017E
Source: Deutsche Bank estimates
Figure 6: Moving towards asset-light
Asset-light model
Romantic Mystery of Show of Tibet Taishan
Traditional “Songcheng model”
Brand Romantic Equity Romantic Show of Show of Hangzhou Sanya Songcheng
Romantic Romantic Show of Show of Lijiang Jiuzhaigou
Source: Deutsche Bank
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Figure 7: Songcheng’s market expansion
Capital Major City
Heilongjiang 1 Hangzhou 杭州千古情 Harbin 吴越千古情 杭州乐园 Urumqi Jilin 2 Sanya Changchun 三亚千古情 Liaoning 3 Lijiang Xinjiang Sheny ang 丽江千古情 Hohhot Beijing Inner Mongolia 4 Jiuzhaigou Valley Hebei Tianjin Yinchuan 九寨千古情 Taiy uan Shijiazhuang 藏迷 Ningxia Shanxi Jinan Shandong 5 Lanzhou 5 Tai’an Qinghai Zhengzhou 泰山千古情 Gansu Shaanxi Henan Jiangsu 6 Yunnan Tibet Xi’an Hef ei Nanjing 阿诗玛千古情* 4 Hubei Anhui 1 Shanghai Lhasa Sichuan Wuhan Hangzhou Chengdu 7 Wuyishan Chongqing Nanchang 武夷千古情 Zhejiang * Changsha Jiangxi 7 Hunan 8 Fuzhou Fuzhou 福州千古情* Guizhou Fujian 3 8 Guiy ang Kunming Taiw an Guangxi Guangdong Yunnan6 Guangzhou Hong Kong Nanning Macao
Haikou Hainan 2
Source: Deutsche Bank
Deutsche Bank AG/Hong Kong Page 7
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Earnings forecast change
Earnings forecast change
We adjust down our 2015 earnings by 7% to reflect the removal of Six Room’s contribution in 2Q15; and we slightly adjust up our 2016 earnings to reflect the contribution from Mystery of Tibet and the Romantic Show of Mount Tai, which the company has confirmed is opening in July 2015.
We decrease our 2015 revenue forecast by 13%, primarily due to 44% decrease in Six Room’s revenue in 2015 as Songcheng did not consolidate the business in 2Q15, which is partially offset up 2% increase in the offline performance show business.
We adjust up our 2016 revenue forecast by 5%, to reflect revenue from Romantic Show of Mount Tai and Mystery of Tibet.
We slightly adjust up gross margin and EBIT margin in 2015, due to a more favorable product mix (i.e. less contribution from Six Rooms).
Figure 8: Our earnings forecast change, 2015E and 2016E Old New Difference RMB m 2015E 2016E 2015E 2016E 2015E 2016E Revenue 2,068 2,729 1,792 2,860 -13% 5% - 6 rooms 692 979 391 979 -44% 0% - Songcheng Performance 1,376 1,749 1,402 1,881 2% 8% Gross profit 1,306 1,727 1,156 1,794 -11% 4% EBIT 853 1,122 800 1,185 -6% 6% - 6 rooms 164 242 93 242 -44% 0% - Songcheng Performance 689 880 707 943 3% 7% Pre-tax profit 888 1,152 835 1,214 -6% 5% Net profit 676 922 632 925 -6% 0% Core net profit 661 906 618 910 -7% 0% Core EPS (RMB) 1.10 1.47 1.02 1.47 -7% 0% Source: Deutsche Bank estimates Note: core net profit and core EPS excluding non-operating income/(expense)
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Valuation
Target price of RMB79
We maintain our Buy recommendation and slightly raise our target price to RMB79, from previous RMB73, mainly due to earnings roll-over. In addition, WACC reduced slightly due to change in beta to 0.92 from previous 0.94, as shown in the table below.
WACC of 7.7%
Targeting 70% equity for its capital structure, as guided by the management. The company is in a net cash position at the moment
Cost of equity of 9.1%
A risk-free rate of 3.9% and market risk premium of 5.6% (our in- house estimates)
A beta of 0.92 (Bloomberg 3-year average)
Cost of debt of 6.0% (our in-house estimates)
Terminal growth of 4%
A tax rate of 25% (for terminal growth)
Figure 9: DCF assumption Our assumptions Old New Equity as % of capital structure 70.0% 70.0% Beta ( 3Y beta from Bloomberg) 0.92 0.94 Risk free rate 3.9% 3.9% Equity risk premium 5.6% 5.6% Cost of equity 9.1% 9.2% Debt as % of capital structure 30.0% 30.0% Cost of debt 6.0% 6.0% Tax rate (for discount rate calculation) 25% 25% Terminal growth rate 4.0% 4.0% WACC 7.7% 7.8% Source: Deutsche Bank
Figure 10: Our new DCF valuation RMB m 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Revenue 1,792 2,860 3,621 4,346 4,997 5,597 6,157 6,773 7,450 8,195 EBIT 800 1,185 1,512 1,825 2,149 2,463 2,771 3,048 3,352 3,688 Tax Rate 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 25.0% Tax (184) (273) (347) (419) (494) (566) (637) (700) (770) (922) NOPAT 616 912 1,165 1,406 1,655 1,897 2,134 2,347 2,582 2,766 D&A 219 241 262 293 312 321 323 321 353 410 Capex (285) (315) (292) (326) (325) (308) (308) (339) (372) (410) Change Working Cap 112 97 (61) (43) (25) (28) (31) (34) (37) (41) FCF 662 935 1,074 1,329 1,617 1,882 2,118 2,296 2,526 2,725 Source: Deutsche Bank
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Figure 11: Our new DCF valuation, cont’d Items Discounted FCF 48,974 WACC 7.7% Net Cash 595 Minority Interest (699) Equity Value 48,870 Shares Outstanding 618 Value per Share (RMB) 79 Source: Deutsche Bank
Sensitivity analysis between terminal growth and WACC
Figure 12: Sensitivity analysis WACC CNY 79 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2%
2.5% 103 88 77 68 61 55 50 45 42 39 3.0% 119 99 85 74 65 58 53 48 44 40 3.5% 143 115 96 82 71 63 56 51 46 42 4.0% 180 137 111 92 79 69 61 55 49 45 4.5% 249 173 132 107 89 76 66 59 53 48 5.0% 417 239 167 127 103 86 74 64 57 51
Terminal Growth Rate 5.5% 1468 401 230 161 123 99 83 71 62 55 Source: Deutsche Bank
If we remove the valuation of Six Rooms
The stock is currently trading at 45x our 2016E core earning, which may seem high. However, we remind investors that the valuation includes Six Rooms, which is an online company that receives high valuation in the market.
We believe it would give a fairer picture if we calculate the implied PER after remove Six Rooms valuation.
We compared Six Rooms with three A-share social media companies – Leshi, Everday Network and Rastar. The three companies are currently trading at an average of 63x 2016 PER.
Six Rooms would be valued at RMB0.33 under at 63 x 2016 PER.
Excluding RMB0.33 attributable to Six Rooms, Songcheng’s offline culture performance is currently valued at RMB44.62, which equates to 39x PER on our 2016E EPS and implies a PEG of 0.7x.
Figure 13: Valuation comp – A-share listed social media companies Ticker Company Name Mkt. Cap Closing price ROE PER PB EV/EBITDA USDm RMB FY 15E FY16E FY 15E FY16E 300104 CH Equity Leshi Internet Information & Technology 16,002 53.61 16% 155.8x 104.7x 20.9x 52.4x 39.5x Corp 300295 CH Equity Everyday Network Co Ltd 1,602 103.41 19% 49.2x 35.x 7.6x na na 300043 CH Equity Rastar Group 3,522 17.55 na 58.5x 48.8x na na 39.6x Average 87.8x 62.8x Source: Deutsche Bank, Bloomberg Finance LP
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Figure 14: Valuation breakdown Share price (RMB) 65.50 Six Rooms 2016 EPS (RMB) 0.33 Target PER (x) 63 Value per share (RMB) 20.95 Songcheng - offline Value per share (RMB)
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Risks
Downside risks
Decline in domestic tourists to Songcheng’s targeted cities. Natural disasters, extreme weather and many external factors could affect the tourism sector. Moreover, with more countries relaxing their visa policies for Chinese citizens, international travel destinations may attract Chinese tourists away from the current popular domestic cities.
Rising competition. Shanghai Disney Resort is expected to open in 2016, which could significantly impact the traffic volume and revenue of Songcheng’s theme parks in Hangzhou. As Songcheng has identified, more companies are eyeing entering the tourism-oriented show industry, which could challenge Songcheng’s market position and affect its profit margin.
Safety incidents. Songcheng’s cultural shows include acrobatic performance, which by nature is a dangerous performance form; the company’s theme parks also have rides that could cause accidents due to equipment breakdown and/or technical failure. Any safety incidents would bring negative publicity, and hurt the company’s brand image.
Difficulties in talent acquisition. Songcheng relies on the teamwork of actors and technicians to deliver the high-quality shows. The company’s growth potential is limited by the number of talented performers, in our view. Songcheng’s revenue and future growth could suffer if the talent recruitment and retention becomes difficult. In addition, the company could face margin pressure from rising salaries.
Prolonged integration of Six Rooms. It could take longer than expected for Songcheng to integrate Six Rooms’ business and realise the synergy between the offline culture show and the online social show.
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Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist Company Ticker Recent price* Disclosure Songcheng Performance 300144.SZ 66.50 (CNY) 24 Jul 15 NA *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=300144.SZ
Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Tallan Zhou
Historical recommendations and target price: Songcheng Performance (300144.SZ) (as of 7/24/2015)
120.00 Previous Recommendations
Strong Buy 100.00 Buy Market Perform Underperform Not Rated 80.00 Suspended Rating
1 Current Recommendations 60.00 Buy
Hold Security PriceSecurity 40.00 Sell Not Rated Suspended Rating
20.00 *New Recommendation Structure as of September 9,2002
0.00 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Date
1. 17/04/2015: Upgrade to Buy, Target Price Change CNY73.00
Deutsche Bank AG/Hong Kong Page 13
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Hotels / Leisure / Gaming Songcheng Performance
Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total 450 52 % share-holder return (TSR = percentage change in 400 share price from current price to projected target price 350 38 % plus pro-jected dividend yield ) , we recommend that 300 250 investors buy the stock. 200 Sell: Based on a current 12-month view of total share- 150 25 % 10 % holder return, we recommend that investors sell the 100 18 % 50 14 % stock 0 Hold: We take a neutral view on the stock 12-months Buy Hold Sell out and, based on this time horizon, do not recommend either a Buy or Sell. Companies Covered Cos. w/ Banking Relationship Notes: Asia-Pacific Universe 1. Newly issued research recommendations and
target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12- month period Sell: Expected total return (including dividends)
of -10% or worse over a 12-month period
Regulatory Disclosures 1.Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. 2.Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.
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Additional Information
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to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the website please contact your Deutsche Bank representative for a copy of this important document.
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David Folkerts-Landau Group Chief Economist Member of the Group Executive Committee
Raj Hindocha Marcel Cassard Steve Pollard Global Chief Operating Officer Global Head Global Head Research FICC Research & Global Macro Economics Equity Research
Michael Spencer Ralf Hoffmann Andreas Neubauer Regional Head Regional Head Regional Head Asia Pacific Research Deutsche Bank Research, Germany Equity Research, Germany
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