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China’s “New Economy” Leshi Makes Vital Acquisition
China’s “New Economy” Leshi Makes Vital Acquisition. Dubbed ”the Netflix of China”, Leshi Internet Information & Technology Corporation was the first online video firm to go public in China. On May 9, 2016, Leshi announced its plans to acquire Le Vision Pictures, which will help further expand its business into film production and the ”big screen”. Leshi is a great example of how the tech service industry is helping to drive China’s New Economy (characterized by China’s transition from an investment-driven to a consumer-led economy).
China’s economic growth woes aside, its transition to the New Economy frames an opportunity for the country’s consumer-led stocks. Companies like Leshi are capitalizing on potential opportunities both to gain market share and increase earnings. As shown in the chart below, New Economy companies listed on China’s domestic A-share markets outperformed their old economy counterparts in 2015, experiencing an increase in earnings per share year-over-year.1
China’s New Economy Outperforms Old Economy
Earnings Per Share for A-Share Companies with Reported 2015 Earnings (RMB Per Share)
(Click to enlarge) Source: Financial Times, as of March 29, 2016.
Leshi to Expand Offerings to Young Consumer Demographic
In a few short years, Leshi has grown from the first publicly listed online video provider to the second-largest company listed on Shenzhen’s tech-friendly ChiNext board with a capitalization of Rmb109 billion.2 For the first quarter of 2016, Leshi declared a 117% rise in operating revenue year-over-year and a net profit increase of over 20% for the same time period.3
Leshi’s deal to acquire 100% of Le Vision Pictures, its film production and distribution affiliate within parent LeEco, has the potential to greatly expand Leshi’s reach both inside and outside of China. Currently engaged in mobile television and internet video production, the deal allows Leshi to supplement its online services with big screen film.
Le Vision Expands Leshi’s Reach to Hollywood
Le Vision Pictures is one of the largest film production and distribution companies in China. With success financing and distributing Hollywood imports into China (such as The Expendables 2 & 3), the company is currently growing its presence in Hollywood. It recently partnered with Legendary East and Universal Pictures on The Great Wall, an upcoming American-Chinese fiction film starring Matt Damon and Andy Lau.4
With the acquisition of Le Vision Pictures, Leshi is positioned to further its foothold as a leading player in the online content market, one that will likely resonate with China’s younger consumer demographic. Perhaps China’s tech-forward service industry will continue to foster a growing number of startups that will help to stake its claim as New Economy China.
The new economy China market can be accessed through VanEck Vectors™ ChinaAMC SME-ChiNext ETF (CNXT). As of May 31, 2016, Leshi comprised 4.04% of (CNXT).
Authored by James Duffy, Product Manager, VanEck Vectors ETFs
ETFs is authored by VanEck thought leaders. VanEck is the sponsor of VanEck Vectors ETFs and is currently among the largest providers of exchange traded funds (ETFs) in the U.S. and worldwide. VanEck Vectors ETFs empower investors to help build better portfolios with access to compelling investment themes and strategies. Our ETFs span many global asset classes, and are built to be transparent, liquid, and pure-play reflections of target markets.
IMPORTANT DISCLOSURES
1 ft.com; China’s new economy groups outperform; March 29, 2016.
2 FinanceAsia; LeEco unit Leshi to buy Le Vision Pictures; May 9, 2016
3 Bloomberg.com; May 18, 2016
4 FinanceAsia, LeEco unit Leshi to buy Le Vision Pictures, May 9, 2016
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