Kuke Music Holding Limited【KUKE】株式ニュース

Kuke Music Holding (KUKE) operates in a growing market and shows significant gross profit margin. There are several risks that investors need to understand. The company has one large supplier, which I don’t appreciate. I also believe that the recent acquisition made by KUKE was too expensive. Hence, in my opinion, this is a company that only institutional investors will study. In my view, KUKE will most likely trade with a total valuation of $74-$300 million. I would buy if the market capitalization crosses the $74 million mark.

https://stockmarketrevolution.com/archives/15254

Business

Kuke Music Holding offers classical music licensing and subscription in China. According to Frost & Sullivan, the company is one of the largest classical music subscription providers in China. Taking into account only this fact, I think that the company will be very interesting for institutional investors:

Powered by our rich and diverse content offerings, we were the largest classical music licensing service provider and the second largest online classical music subscription service provider in China in 2019, according to Frost & Sullivan, representing 46.6% and 13.8%, respectively, of the market share in terms of revenue.

Kuke Music Holding appears to be having good relationships with some of the most well-known music labels in the world. We are talking about Naxos, which helped Kuke create what appears to be the largest library of classical music content in China. The company owns exclusive rights of over 1.8 million music tracks.

The number of Kuke’s clients also appears very overwhelming. As of September 30, 2020, the company reported 743 743 institutional subscribers with 444 universities in China.

With regards to Kuke’s target market, the company is operating in a growing industry. The global music streaming market was valued at USD 20.9 billion in 2019, and is expected to increase at a CAGR of 17.8% from 2020 to 2027.

If we talk about the market in China, the numbers are also beneficial. Digital music is expected to show a growth rate of 12.3% CAGR from 2020 to 2025. I would expect the company’s sales growth to be close to this figure.

Specifically, the classical music market in China is expected to grow at a CAGR of 9.3% from 2020 to 2025. If the company performs better than the market, Kuke could be delivering sales growth of more than 9.3% y/y. However, I don’t believe that most investors will expect Kuke to do much more than that. Notice that the company did not deliver organic sales growth in 2019.

Its market size, as measured by total revenue generated from classical music licensing, paid subscription of online classical music subscription service providers and box office receipts of classical music performances, grew from RMB1,040.4 million in 2015 to RMB1,738.4 million in 2019, at a CAGR of 13.7%, and is expected to reach RMB2,396.6 million by 2025, at a CAGR of 9.3% from 2020 to 2025. Source: Prospectus

Large Gross Profit Margin

Kuke does not report sales growth, but it does report massive gross profit margin. In 2019, the gross profit margin was equal to 66%, which is quite large as compared to other companies. The gross profit margin of Spotify (SPOT) is close to 21%.

As far as the balance sheet is concerned, in 2020, Kuke enhanced its financial shape quite a bit. The total amount of assets increased by 56% in the 9M 2020. At the same time, total liabilities decreased by 14%. With that, certain shareholders may not appreciate the transactions that generated such impressive financial gain.

https://stockmarketrevolution.com/archives/15254

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