China’s latest red-hot IPO is a state-owned film distributor

Look at that share price go.
Look at that share price go.
Image: Reuters/William Hong
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The stock price of China’s most dominant movie distributor has made for entertaining viewing since its IPO 10 days ago.

As the distribution arm of China Film Group—a state-owned conglomerate that has exclusive rights to importing foreign movies—China Film Co. has a 58% share of the nation’s overall movie distribution market.

It listed shares on the Shanghai Stock Exchange on Aug. 9 after raising 4.17 billion yuan ($628 million) in an IPO. Priced at 8.92 yuan ahead of the offering, its shares closed at 12.84 yuan on the day of the company’s debut, valuing it at around $3.6 billion.

Each day since then, the stock has jumped 10%—the daily limit. Upon its closing today (Aug. 18) the stock has surged by 180% since its pre-IPO price, closing at 24.99 yuan, and its market cap now sits at just over $7 billion, according to data from S&P Global Market Intelligence.

China Film Co. isn’t the nation’s only movie distributor, but it plays a leading role in controlling sale and distribution to movie theaters across the country. It sets the quota for foreign movies allowed to screen domestically, and works closely with the government’s censorship agencies.

China Film Group also finances and produces films—and it can favor them. After it took a 10% stake in Furious 7, for example, the action flick played on a record number of screens (paywall) and became the highest-grossing Hollywood movie of all time in China.

This month’s IPO came amid increasing government scrutiny of the movie business. Beijing wants the industry to boost consumer spending and develop the nation’s “soft power” while also remaining deferential to the Chinese Communist Party.

A draft law proposed last year reflects the government’s ambivalence toward the industry. It encourages building more movie theaters and funding more films, but forbids content that endangers social morality, disturbs the social order, and “undermines social stability.”

The IPO of a state-owned movie distributor serves as a green light of sorts for the film industry, albeit on the government’s terms. Already, other film companies are following suit and selling shares publicly. Production studio Shanghai Film Group—controlled by the city of the same name—completed an IPO yesterday (Aug. 17) and also saw its share price soar.

China’s box office is set to overtake that of the US by next year, according to data from research firm EntGroup.

Last month box office sales were down 15%, according to EntGroup, marking the second time the industry suffered negative growth this year. The decreases might be due in part to a crackdown on theaters inflating their sales numbers, a practice that has been rampant in the industry for years. The slowing economy might have played a role as well.

But overall, investors in China’s film industry like what they’re seeing.