Golden Heaven Group Holdings Ltd — Another Gamestop?
Golden Heaven Group Holdings Ltd. (NASDAQ:GDHG) is a Cayman Islands holding company that operates amusement parks, water parks, and complementary recreational facilities in China. The company was founded in 2020 and went public on the NASDAQ exchange in April 2023.
The company’s head office is also in the city of Nanping, which, according to GDHG, is known as “the birthplace of the Chinese amusement park industry”. The firm’s parks occupy approximately 426,560 square meters of land in the aggregate and are located in geographically diverse markets across the south of China.
GDHG has opened six amusement parks throughout China, namely Yunnan Yuxi Jinsheng Amusement Park, Mangshi Jinsheng Amusement Park, Changde Jinsheng Amusement Park, Yunnan Qujing Jinsheng Amusement Park, Anhui Tongling West Lake Amusement World, and Yueyang Amusement World. These amusement parks are each located in the heart of tourist cities or near national tourist attractions, mainly in Yunnan Provence, Hunan Provence, Anhui Provence. The company has plans to expand significantly.
According to GDHG, due to the geographical locations of the parks and the ease of travel, the parks are easily accessible to approximately 21 million people. Just prior to the IPO, the parks collectively contain 139 rides and attractions.
In addition to its amusement parks and water parks, GDHG also has operations in complementary recreational facilities, such as restaurants, and food stalls. The company also provides rental services for food festivals and other customer-facing services.
Share price surges
The micro-cap IPO took place in April and valued shares at $4 — that was to the bottom of the company’s originally stated range — raising $7 million for the firm. At the time of writing, the stock trades for more than $17, representing a 328% surge since the IPO.
The reality that GDHG priced its IPO at the bottom of its originally stated range，this may have been due to a number of factors, including the company’s size, limited track record, and the overall decline in the Chinese stock market.
However, the fact that the stock has since surged by over 320% suggests that there is growing investor interest in the company. This may be due to a number of factors, including the company’s strong growth potential, its well-positioned in a growing industry, and its plans to expand its operations.
Performance
GDHG’s revenue comes from a variety of sources, including ticket sales, food and beverage sales, and rental income. In the six months ended March 31 2023, the company generated revenues in excess of RMB 140 million. This represented a 6% increase from the six months ended March 31 2022.
The gross profit for the first half of 2023 also trended positively, reaching RMB 101 million, reflecting a 7.5% increase from the RMB 94.0 million recorded in the corresponding period of the prior year. This was achieved with a gross margin of 71.37%, a rise of 1.02 percentage points from H12022.
Correspondingly, net income rose to RMB 51.8 million, a 12% increase year-on-year. However, more impressively, earning per share rose to RMB 1.05 in the first half of 2023, surging by an impressive 135.1% when compared to the RMB 0.45 reported during the same period of the prior year.
The company provided a revenue breakdown in USD, noting the impact of the appreciation of the dollar on perceived performance metrics. We can observe that ‘sales of in-park recreation’ accounts for around 98% total revenue. Total revenue for the six months of $20.1 million reflected a 3.35% decline year-over-year primarily due to the appreciation of the dollar. As noted above, in RMB terms, revenue expanded 6%. The expansion in RMB-reported revenues can be attributed to the lifting of Covid-19 restrictions on travel which proved to be more persistent in China than elsewhere in the world.
Meanwhile, from a cost perspective, we can observe fluctuations over the past 18 months, but nothing significant. Cost of revenue increased by RMB 0.88 million for the six months ended March 31, 2023 compared to the same period in 2022, but decreased 6.6% in USD terms to $5,600,112. Total operating expenses decreased by $429,590, or 9.63%, from $4,458,645 for the six months ended March 31, 2022 to $4,029,055 for the six months ended March 31, 2023. While administrative expenses increased, selling expenses fell.
Positive prospects
GDHG operates in a growing industry. According to a report by McKinsey & Co in 2022, the Chinese amusement park market had an estimated value of $5.6 billion in 2019. The report predicts that this market is poised for significant growth and is expected to reach $12.6 billion by the end of 2025. This forecast translates to a remarkable compound annual growth rate (CAGR) of 14.4% from 2019 to 2025, signifying a robust expansion in the Chinese amusement park industry over this period. According to complementary research, a CAGR of 15% is also expected in the years to 2027. This growth is being driven by a number of factors, including the rising disposable income of Chinese consumers, the increasing urbanization of China, and the growing popularity of family tourism.
The Nanping-based company is well-positioned to capitalize on this growth. The company has a strong track record of profitability and growth, with planned operational expansion. The company recently announced that it contracted an engineering firm for three new amusement parks in southern China; Yangming Lake Glacier Tribe Amusement Park, the Seven Rainbow Park, and the Linli Jinzheng Amusement Park. It also plans to open one of the country’s largest parks in 2024. Through these strategic moves, GDHG aims to become the leading regional amusement park business in the country. Moreover, the entertainment provider has a strong financial footing to achieve its objectives, with $28.26 million in cash and equivalents, and liabilities of $21.84 million.
However, GDHG is by no means the only player in the Chinese amusement park industry. Competitors including Wanda Group, OCT Group, and Chimelong Group are seeking to expand their share of this growing market as China’s recreational sector re-emerges from the pandemic. While the company faces stiff competition from larger and more established players in the industry, GDHG believes that it is differentiated by its focus on providing a high-quality experience for its customers. If there is an opportunity to collaborate with top-tier amusement park companies in the future, that would be even better.
Another GameStop?
GameStop’s share price surged to an all-time high of $483 on January 27, 2021–190 times higher than its lows nine months previous — fueled by a short squeeze and buying frenzy from retail investors. There were no commercial updates to support the surge, and it was evidently unsustainable. Unsurprisingly, the stock has since fallen sharply and is now trading at around $14 per share. Could GDHG be the same?
Well, yes and no. GDHG currently trades at 61.8 times TTM earnings, However, it’s not wildly expensive when compared with international peers — Six Flags Entertainment Corporation trades at 21.5 times TMM earnings, although Cedar Fair trades at just 7.4 times TTM earnings. We can attribute this premium to the company’s exceptional earnings per share growth, and positive sentiment about the sector’s growth in China.
The company certainly bucks the trend when we look at other listed leisure and entertainment stocks, with the likes of HOFV Hall of Fame Resort & Entertainment Company, Bowlero Corp, and Cedar Fair all trending downwards. However, it remains a risky investment, maybe another GameStop?
