Gelonghui, April 17 | Elegant Optics (00907.HK) announced that the company made a strategic decision to transform the Group's eyewear frame and sunglasses manufacturing into eyeglass frame and sunglasses trading (“eyewear business”) to actively adjust the business and reduce costs, cope with external pressure, and reposition the group as a one-stop solution provider focusing on the upstream and midstream eyewear product markets.
With decades of experience in the eyewear industry, the Group has accumulated rich assets and expertise, laying a solid foundation for the transition to a procurement-based business model. Despite withdrawing from the direct manufacturing business, the company is starting a new chapter with a strong attitude.
Although the company is based in the manufacturing industry, it still has comprehensive eyewear expertise, relationships and leadership positions, enabling the Group to effectively develop and execute strategies to expand the scale of the procurement business and attract partners and customers. This preserves the valuable institutional knowledge developed by the company in the process of advanced eyewear design, production, quality control and supply chain management. The company will use this expertise to ensure it maximizes value while focusing on core procurement capabilities.
Despite a temporary decline in earnings from the eyewear business, the Group believes that the sale of manufacturing plants will not affect business relationships with long-term eyewear customers. Although customers may take time to adapt to the new business model, the Group is still their trusted partner for purchasing high-quality eyewear products. Losing internal manufacturing is a temporary change in business rather than a permanent loss of customer relationships or demand. By maintaining strong customer relationships and acting as a promoter of eyewear trade, the Group can gradually recover profits as customers adapt to new business models.
The Group first launched its film business in 2017 and is engaged in the film distribution business through its subsidiaries. The Group then expanded its film business and made two film investments in FY2019 and FY2020 (“Film Business”). Despite this, the actual box office of film investment has been seriously affected, mainly due to the blockade and closure of cinemas across the country due to the pandemic. The group then took a cautious approach and suspended other film investments. On the other hand, the Group has actively enriched its film business through film distribution and film-related production services, while seeking potential investment opportunities to seize the rebound.
As the entertainment business begins to recover from the pandemic, the Group has an opportunity to play a more upstream role in the industry value chain and resume major film investments. The Company has entered into a three-year master participation agreement with Emperor Films Limited (“Emperor Films”) to invest in a series of works or multiple film portfolios of Emperor Films. The Group believes that Emperor Film is one of the leading integrated enterprises in the Hong Kong film industry and has extensive influence in the entire film value chain. Given the industry landscape and the unique position of Emperor Films, at this stage, the Group believes that in-depth cooperation with Emperor Films can provide the most direct way for the Group to participate.
By investing in multiple film portfolios rather than betting on a single film, the Group can reasonably expect that even if any individual film underperforms, the Group can generate sustainable returns over time. The Group will invest in films that are in line with the Group's investment strategy, including films that match the Group's budget and a minimum share participation rate of 30% for a single film. The Group will conduct full independent due diligence when selecting potential film project investments. The Group's internal experts will review factors such as script outline, suggested casting, director qualifications, budget and target audience to make investment decisions. As a major co-investor, the Company will provide active consultation to guide core decisions before investing. The Group will also ensure that execution meets contract expectations and that all materials comply with regulatory requirements in target regions. As of the date of this announcement, the Group has made 3 investments, including “Zaijaku 2” and “Married Without a Day 2,” and has agreed and promised to invest in 3 more films to be screened in 2024.
The company is optimistic about the recovery prospects of the industry and is committed to the long-term development of the film business. The Group expects to use internal resources generated from existing film investments to fund future film investments and seek external funding to further expand its investment portfolio in due course.