I. Project Overview:

Since Guangxi Royal Dairy (stock abbreviation: Royal Dairy, later renaming Royal Group), intended to get involved in movies & TV production and distribution emerging industry, and transform into a dual main-business development listed company, it intended to issue shares to pay cash for to buy all the stake in Charter Movies & TV Production Group Co., Ltd.. In this transaction, the listed company planned to issue shares and pay cash to purchase 100% stake in Charter Movies & TV held by Mr. LI Jianguo. The transaction amount reached RMB 682.50 million.

II. Project Characteristics

The acquired Charter Movies & TV is a cultural and media enterprise, integrating prime TV series, drama production and distribution businesses. The project team faced a large valuation pressure and how to reasonably appraise the value of the underlying asset became a problem for the project team. Finally, the project group reasonably reflected the value of the underlying assets by adopting the income approach, verified by using the asset-based approach, and also focused on the valuation of the market approach, reasonably and comprehensively reflecting the enterprise’s overall value. The appraisal value of trading target was higher than its combined caliber: the appreciation of the shareholders’ equity attributed to the parent company for the following reasons: because the TV series production and distribution industry is featured by “light assets and high incomes”, and also because the TV series production and distribution industry has a good space for development for it is now in the rapid development stage. Besides, Charter Movies & TV’s good brand effect, smooth distribution channels, and strong resource integration ability are also important reasons for the high valuation of trading target.

III. Project Highlights and Difficulties

As the person-in-charge of the project, Mr. YAO Yongjun and Mr. CUI Denghui were mainly responsible for overall coordination with CEA and other intermediaries, overall controlling quality. They set up a project team, whose members are capable. The team organized and examined the operating program of the project, responsible for solving major problems in the working process. They attended coordination meetings and reporting meetings organized by CEA for several times, organized the project team to conduct technical discussions, such as operating revenue, operating cost prediction, comparable companies in terms of the discount rate and specific risks, etc. in the income approach. In the later stage, they also organized CEA’s technical backbones to review the appraisal report, so as to ensure the completion of the project with quality and efficiency.

Considering the following scenarios such as the short history of the target company, its earnings showing explosive growth, the rapid development of the industry, and heated M&As and restructuring, we took full account of the macroeconomic environment, the specific circumstances of the underlying assets, industry policies and development in the appraisal process. Through communications with the Management and each intermediary (including interviews), we reasonably forecasts future operating revenues and growth rates, fully considered the systematic risks and specific risks, tried to choose a reasonable discount rate, and eventually reflected the market value of the underlying assets reasonably and fairly, laying a reasonable basis for pricing for the two sides of the transaction.

IV. Project Summary

Prior to the transaction, the listed company’s main business is dairy production, processing and sales. The main businesses of the underlying assets the listed company intends to purchase are TV series, drama production and distribution. After the completion of this transaction, the listed company has transited to run double main businesses. Through diversified business, it can better balance economic development and avoid the systemic risk brought by the industrial development cycle.

After the integration, Royal Diary achieved the desired effect. The announcements of Royal Diary showed that as the target company, Charter Movies & TV successfully completed its 2014 achievements it promised to do so. Royal Diary’s 2014 consolidated financial statements showed all the indicators achieved a tremendous growth, especially the net profit attributable to the shareholders of the listed company, earnings per share, and so on achieved a growth of over 100%. Meanwhile, the capital market was also bullish about the integration. Royal Diary’s share price was almost doubled, thus bringing really good news for the big shareholders and the minority shareholders of listed companies as well.

After this integration, Royal Diary accelerated the pace to develop the emerging media industry. It also acquired Sun Shine, indicating that it marched into the new media in a gradually deep manner. It can be said that the project opened the curtain of Royal Diary’s M&A development.