YH Entertainment, China's largest artist management firm, has filed for an initial public offering in Hong Kong amid the country's crackdown on the entertainment industry, celebrities and fan culture.
Founded in 2009 by Du Hua, who owns a 53.5 percent stake with her husband, the Beijing-based company has 58 managed artists and 80 trainees, and counts Alibaba (9988) and ByteDance among its investors.
Its top artists include actor Wang Yibo, who debuted as a member of the Korean-Chinese boy band Uniq and became a major celebrity in China overnight after starring in a hit queer romance novel-based drama, The Untamed, which had more than 5 billion views within two months after its release in 2019.
YH Entertainment's revenue rose 40 percent to 1.29 billion yuan (HK$1.59 billion) last year from 2020, with the artist management business - which includes all the revenue the artists earn from commercial activities or programs - accounting for more than 90 percent of the total.
While it did not disclose how much it earned from major artists like Wang, YH Entertainment said the total amount paid to its top five artists took up 62 percent of its costs last year.
In addition to Wang, YH Entertainment is home to Han Geng, the actor and former member of Korean boy band Super Junior, who joined the company in its early years and now holds a 2.5 percent stake.
Du set up a subsidiary in South Korea and worked with local firms after signing Han to build a K-pop-style trainee program for the company. The company saw five of its artists and trainees among final winners in Idol Producer and Produce 101 China, after these reality shows hit the big time in China in 2018.
The total amount of money raised by fans on one single crowdfunding platform for contestants at the final round of Produce 101 China exceeded 20 million yuan, with over 210,000 people joining, data from platform Modian showed.
However, China last year started to crack down on the entertainment industry by banning idol reality shows, frowning on artists with "effeminate" styles, and strengthening tax regulation on celebrities.
YH Entertainment said in the filing its business could be adversely affected due to evolving policies and other legal uncertainties as "the entertainment industry is extensively regulated in China."
Apart from regulatory risks, the company also faces a challenge retaining talent, as its contracts with most of the popular artists it manages, including Wang and Han, will expire over the next two years.
To reduce both risks, YH Entertainment is investing in virtual artists as they "have fewer reputational risks, lower management costs and more application scenarios." To this end, A-Soul, a band of five digitally created girls, was created by Tiktok's parent ByteDance and promoted by YH Entertainment.
Its pan-entertainment business, which mainly pulls in income from virtual idols, posted an 80 percent growth in revenue to 37.9 million yuan last year despite taking up less than 3 percent of the total revenue.
YH Entertainment's net profit rose 14.9 percent to 335.3 million yuan in 2021 from a year earlier, but it paid 600 million yuan worth of dividends over the last two years, which is close to its total net profit of 746 million yuan over the last three years.
Alibaba Pictures, a film company under Alibaba, indirectly owns 14.25 percent in the company while media-focused fund China Media Capital owns the same amount. ByteDance also has a 4.74 percent stake through its subsidiary.
The IPO proceeds will be used to purchase training centers, expand the artist promotion and the music library as well as make future acquisitions, it said.
China Securities International and China Merchants Securities International are joint sponsors of the proposed offering.
