IPOs: China’s Wanda Bulks Up on Hollywood Feast, IPO in Sight?

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Bottom line: Wanda’s first half report shows that entertainment continues to be the company’s focus going forward, and could hint at an eventual IPO for the entire group similar to Alibaba’s record offering 2 years ago.

Wanda’s Commercial Property unit posts H1 decline

The fast-rising but privately held Wanda Group has just released first-half results in English for the first time that I can recall, in a report that has plenty of room for improvement due to its highly selective disclosure. But the report does provide some color on Wanda’s overall makeup, including the fact that its original real estate business now accounts for just half of overall revenue. One intriguing footnote to this new reporting trend is the company’s growing efforts to reach an international audience, which could hint at plans for an eventual IPO by one of China’s largest privately owned groups.

We’ll return to the IPO question towards the end of this post. But first let’s begin with a look at the first-half report that showed Wanda’s overall revenue grew a modest 11 percent in the first half of the year to about 120 billion yuan ($18 billion), marking a slowdown from 20 percent growth for all of 2015. (company announcement; English article; Chinese article)

Within that figure, most observers focused on Wanda’s original real estate business and its fast-rising entertainment unit that owner and billionaire Wang Jianlin is rapidly building up. The former consists mostly of commercial properties, including shopping malls and office buildings. The latter encompasses a wider range of assets, from movie-making, to cinemas and theme parks.

The real estate unit contracted in the first half, with sales falling 12 percent to 64.4 billion yuan. One report points out that the group predicted at the start of 2016 that its real estate division’s sales would fall 32 percent for the full year. So one could either interpret this first-half figure as showing the decline isn’t as bad as the company originally envisioned, or that a much bigger slump is coming in the second half of the year.

While real estate struggled, the opposite was true for Wanda’s entertainment unit, Wanda Cultural Industry Group, whose sales jumped 57 percent to 29 billion yuan, accounting for about a quarter of total revenue. There’s no word on profits anywhere in this highly selective report, and I suspect the entertainment unit is losing big money following a major spending spree. That includes a building spree for new theme parks and cinemas, and also acquisitions of overseas theater chains.

Strong Growth for Film, Overseas

Other highlights of the report include 19 billion in revenue for the company’s film-making unit, Wanda Film, which was up 43 percent from last year and presumably includes the company’s $3.5 billion purchase last year of Hollywood studio Legendary Entertainment. The announcement also said that overseas assets now generate about 15 percent of the group’s revenue after rising nearly 80 percent in the first half.

We’ll close with some discussion of a potential group IPO that I mentioned at the outset of this post. Wanda already has several publicly listed units, including one for its domestic cinema operations and one for its commercial property. But it’s currently trying to privatize the Hong Kong-listed commercial property unit, amid speculation that it could try to re-list the unit back in China at a higher valuation.

But another possibility could be a listing for the entire group. That would be similar to what e-commerce leader Alibaba (NYSE: BABA) did, following a similar separate listing for its original B2B e-commerce site Alibaba.com, which was later privatized due to lackluster performance. Such a listing for the entire group might be more attractive to investors who want more exposure to Wanda’s fast-growing entertainment business, as well as its more conservative real estate operations. We’ll have to wait and see if Wang Jianlin starts to talk about such a listing anytime soon, as he’ll probably be needing some cash to help pay for his massive spending spree over the last 2 years.

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