On a tightrope: Bona Film Group finally joins the A-share market

Last Thursday, Bona Film Group 博纳影业 finally made its A-share listing on the Shenzhen Stock Exchange, five years after its prospectus was first released. By the end of the first day of trading, the opening share price of 5.03 yuan ($0.73) had surged to almost 7.96 yuan ($1.16), giving the company a market capitalization of close to 11 billion yuan ($1.61 billion).

(Not) making it in New York

Last week’s A-share listing marked the culmination of a long journey for Bona Film Group on the capital markets. Founded in 2003, Bona Film Group was one of China’s first film companies to raise money from a stock exchange (and the first to IPO in the U.S.) when it listed on Nasdaq in 2010 at 17 yuan ($2.49) per share. But the American adventure went badly for Bona Film Group, as the share price slumped on the opening day, and the company’s market capitalization peaked at 3 billion yuan ($439.99 million).

By contrast, Bona Film Group’s domestic competitors proceeded to list on the A-share market in China and achieved great success, notably Huayi Brothers 华谊兄弟, which went public on the Shenzhen Stock Exchange in 2009, and eventually reached a market capitalization peak of 90 billion yuan ($13.19 billion) in 2018. But now far from its former glory, Huayi Brothers is a cautionary tale of the Chinese film industry: From 2018 to the first quarter of this year, the company has suffered cumulative losses of 6.57 billion yuan ($964.03 million), and its market capitalization has dropped to 7.60 billion yuan ($1.11 million), a decrease of more than 90%.

For Bona Film Group founder and chairperson Yú Dōng 于冬, the whole Nasdaq experience was unsavory and unfair. In the 55-month period that the company was listed in the U.S., Yu said, Bona Film Group never had a single unprofitable quarter. Yu claims his company was greatly undervalued, and that American investors simply did not understand the Chinese film industry. Yu noted that the people who watched Bona Film Group’s movies were all in China. (He did not explicitly mention that many of Bona Film Group’s most successful films are patriotic in nature and highly supportive of government propaganda messages, which may sound anathema in Hollywood but is a key ingredient for cinematic success in contemporary China.)

In April 2016, Bona Film Group completed its privatization, and was delisted from Nasdaq. In September 2017, the company released a prospectus for listing in China, but it would be another arduous journey for it to finally reach the A-share market:

• In 2016, the China Securities Regulatory Commission essentially put a stop to film and television industry mergers and acquisitions, and imposed strict regulations for IPOs.
• In July 2019, an auditing firm hired by Bona Film Group was investigated by the China Securities Regulatory Commission for financial fraud, and the company’s IPO was suspended.
• Then, after the arrival of the COVID pandemic, the temporary halting of all filming and closure of movie theaters, and a requirement from the China Securities Regulatory Commission that the company indicate how its business operations would be sustainable and profitable, Bona Film Group resubmitted its prospectus in August 2020.
• Finally, on July 28 this year, Bona Film Group’s IPO was approved.

Patriotic mainstream movies

According to the prospectus, Bona Film Group has produced more than 250 films. Sixteen grossed 1 billion yuan ($146.66 million), 75 exceeded 100 million in ticket sales, and its cumulative box office has exceeded 60 billion yuan ($8.79 billion). The company’s revenue has been based on nationalistic mainstream commercial films with high production costs and general appeal, such as Our Time Will Come (明月几时有) and Wolf Warrior 2 (战狼2) in 2017, Operation Red Sea (红海行动) in 2018, The Captain (中国机长) in 2019, and Chinese Doctors (中国医生), a disaster film about a highly infectious virus breaking out in Wuhan, Hubei Province, considered a homage to front-line medical staff who treated the first COVID outbreak in China, in 2021.

But it was the propagandistic box office smash hit The Battle at Lake Changjin (长津湖), released on September 30, 2021, that propelled Bona Film Group into the A-share market. Set in the Korean War in 1950, The Battle at Lake Chanjin became the most popular film ever in China, achieving cumulative box office sales of 5.7 billion yuan ($835.99 million). As a result, the company estimates that it will achieve total revenue for the period January to September 2022 of up to 2.27 billion yuan ($334.25 million), a year-on-year increase of 65.51%, and a net profit of up to 237 million yuan ($34.75 million), a year-on-year increase of 223%.

Walking on a tightrope: High risk, high reward

Bona Film Group is expecting to raise about 1.38 billion yuan ($202.83 million) in its IPO, and will use most of the funding, 1.03 billion yuan ($151.06 million), to make more mainstream movies. A further share of about 210 million yuan ($30.79 million) will be used to expand the company’s layout of offline cinema theaters. As of December 31, 2021, Bona Film Group operated 101 cinemas across China.

The Battle at Lake Changjin paid off handsomely for Bona Film Group last year. But the company may not always be so lucky, especially as the Chinese box office is still very much in the doldrums.

• According to the China Film Administration, as of August 14, China’s box office in 2022 reached 22.84 billion yuan ($3.38 billion), a year-on-year decrease of 28%.
• According to domestic cinema operator Wanda Films 万达电影, in the first half of 2022, the Chinese box office amounted to 17.18 billion yuan ($2.51 billion), a decrease of 37.7% year-on-year, and the total number of moviegoers was 398 million, a decrease of 41.7% year-on-year. From March to June this year, the domestic box office was only 4.11 billion yuan ($602.79 million), a decrease of 65.6% year-on-year.
• The box office for March, April, and May all hit new all-time lows.

Bona Film Group will have to keep making box office hits like The Battle at Lake Changjin, and hope that the pandemic and the ongoing lockdowns have not destroyed consumer interest in movie theaters, otherwise, it may go the way of Huayi Brothers, drowning in debt and dreaming of pre-COVID glory days.