Impression Dahongpao is trapped in “Impression-Dahongpao”

The producer of an outdoor performances at a popular South China tourism spot has taken its own show on the road with a Hong Kong IPO application

Key Takeaways:

  • Impression Dahongpao Co. has filed for a Hong Kong IPO, reporting revenue of 100 million yuan in the first three quarters of 2024
  • The company’s biggest Achilles heel is its lack of understudy for the single show that is its lone breadwinner

  

By Lau Chi Hang

In 2010, Alibaba founder Jack Ma suddenly took a pause from his crazy work schedule and chartered a private jet to the famous Wuyi Mountain scenic region in Southern China’s Fujian province just to see a show. What he saw didn’t disappoint, as he gave the performance a glowing review.

The show that impressed Ma so much was the “Impression-Dahongpao Scenery Show,” an outdoor performance created by the Fujian Mount Wuyi Cultural Tourism Group. The creator spun off the show’s producer, Impression Dahongpao Co. Ltd., and listed it on China’s thinly traded National Equities and Exchange (NEEQ) market in Beijing. Now, it’s planning to take the act to the main stage with its application earlier this month for an IPO in Hong Kong.

Declining revenue

Impression Dahongpao may have created a showstopper in Ma’s eyes, but its business wasn’t faring as well last year. It reported a loss of 2.6 million yuan ($360,000) on revenue of 63 million yuan in 2022, before moving to the black with a profit of 47.5 million yuan on revenue of 144 million yuan in 2023. But its revenue fell 6% year-on-year in the first three quarters of 2024 to 106 million yuan, while its profit fell 16% to 34.3 million yuan.

The company’s business is divided into three major segments. Its main attraction is the “Impression-Dahongpao Scenery Show,” a tourism scenery performance. The second is its operation of the Impression Cultural Tourism Town, including such attractions as the Scenic Wuyi Tea Park, Impression Jianzhou Food-themed Street and Wuyi Rock Tea Research Society. The third business is its Chatang hotel that features 50 upscale guest rooms with distinctive traditional Chinese elements.

The tourism scenery performance that underpins its business blends landscape scenery with distinctive culture and folklore and is performed on a stage at a famous local scenic spot. The show’s creators include celebrity director Zhang Yimou, along with Wang Chaoge and Fan Yue. It ranked third in terms of ticket sales among all tourism scenery performances in China and was ninth in terms of all cultural tourism performances in China in 2023.

The company hopes to entice investors with its position in China’s vibrant live performance market fueled by demand from the country’s new middle class. According to third-party data in the its listing document, China’s live performance market is expected to reach 136 billion yuan by 2028, growing by about 13% annually between 2023 and 2028.

The sector has rebounded strongly post-pandemic, as China promotes the cultural tourism industry and consumerism in general to boost its economy. What’s more, the “Impression-Dahongpao Scenery Show” has become renowned throughout China, widely regarded as a must-do activity for visitors to the scenic Wuyi Mountain area. Those factors could combine to make now an ideal time for the company’s debut on the Hong Kong Stock Exchange. That said, investors do need to take note of several elements about this company.

One-trick pony

One of the most important things to note is that this company is largely a one-trick pony, with most of its revenue coming from the “Impression-Dahongpao Scenery Show,” according to its listing document. Ticket sales and related revenue from the show generated 100 million yuan in revenue in the first three quarters of 2024, or 95% of the company’s total.

Too much reliance on a single revenue source is a classic red flag for investors, undermining a company’s ability to cope with changes in the business environment or market trends. Outdoor landscape performances are also unusual in their reliance on the natural environment, with elements like rain, wind and cold potentially affecting audience sizes. Other factors are also beyond the company’s control, such as the pandemic, when its revenue dived by about half year-on-year to only 50 million yuan in 2020.

The company is already trying to diversify its revenue base with efforts to develop the Impression Cultural Tourism Town and Changta hotel. Still, those businesses have yet to bear fruit and remain an insignificant part of the company’s revenue base. In the first three quarters of 2024, the Impression Cultural Tourism Town generated a scant 2.4 million yuan, and the Chatang hotel was just slightly higher at 2.82 million yuan, accounting for 5% of the company’s overall revenue combined.

Little wiggle room for higher prices

Investors may also wonder about the company’s future growth potential. “Impression-Dahongpao Scenery Show” means everything for the company’s success. But all of its revenue comes from ticket sales, which depend on the number of seats sold and ticket prices.

Given the show’s 14 years of history and many tourist views, including some by people who have seen it many times, it’s hard to imagine there’s much room for ticket sales to keep growing over time. Ticket sales in 2023 reached 919,000, with 635,000 sold in the first three quarters of 2024. Thus, the annualized figure for 2024 may not even reach 2023’s level.

Meanwhile, raising prices by too much again could be hard after the retail price of tickets rose to 203.9 yuan in the first three quarters of 2024, a relatively high cost for China. Ticket prices averaged 190.8 yuan in 2022 and rose to 195.4 yuan in 2023, showing annual increases have ranged between 5 and 10 yuan, which translates to less than 5% increases each year.

Pinning hopes on ‘Moonlight over Wuyi’

Facing concerns about its one-trick-pony nature, the company began working on a new show, “Moonlight over Mount Wuyi” in 2024, with a premier expected in April this year. Such a move would provide a second major revenue source for the company, reducing its reliance on “Impression-Dahongpao Scenery.”

But the new show will require about nine and a half years just to earn back its investment, meaning it may only be able to make limited contributions during that time. The new show may also have trouble moving beyond the shadow of its older cousin, since both are based in the Wuyi Mountains scenic area and focus on local culture. Not only may audiences tire of the same theme, but the two shows could even cannibalize each other’s audience.

The company’s NEEQ-listed shares currently trade at a hardly show-stopping price-to-earnings (P/E) ratio of only 15 times. Annualizing the company’s profit for the first three quarters of last year would value it at less 1 billion yuan based on its latest P/E ratio. Such a valuation is already quite modest, and the company could easily be valued even lower in Hong Kong where investors are far pickier.

To subscribe to Bamboo Works free weekly newsletter, click here

Recent Articles

BRIEF: EPWK ends flat in Nasdaq trading debut

Gig worker crowdsourcing platform operator EPWK Holdings Inc. (EPWK.US) made a muted trading debut on Thursday, closing up a slight 0.24% at $4.11 in its first trading day on the…