this document is in draft form, incomplete and … · platforms generally organize marketing...

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BEREAD IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

You should read the following discussion and analysis in conjunction with our combined

financial statements as of and for the years ended December 31, 2017, 2018 and 2019, including the

notes thereto, as set forth in the Accountant’s Report in Appendix I to this document. The

Accountant’s Report has been prepared in accordance with the HKFRSs, which may differ in

material aspects from generally accepted accounting principles in other jurisdictions. The following

discussion and analysis contain forward-looking statements that reflect our current views with

respect to future events and financial performance. Whether actual outcomes and developments will

meet our expectations and predictions depends on various risks and uncertainties, including those

set forth in the sections headed “Risk Factors” and “Forward-looking Statements” in this document.

OVERVIEW

We are a leading live streamer facilitator, specializing in streamer incubation and management, online

entertainment content production and distribution, and content marketing. We ranked No.4 in the highly

fragmented live streamer association market in China, in terms of net revenue generated from live

streaming, according to the F&S Report. Leveraging our partnership with a comprehensive league of live

streaming platforms in China, we have become one of the few streamer associations with access to the

largest user base in China’s live streaming market, according to the F&S Report.

We believe we play a unique, indispensable role in this market by connecting streamers with live

streaming platforms. On the streamer side, we congregate our streamers in live streamer associations we

establish and centrally manage business affairs between streamers and platforms. As a constant source of

viable streamers and high-quality content, we help live streaming platforms increase their popularity among

users and, consequently, their market share. Our collaboration with partnered live streaming platforms also

alleviates them from having to incur considerable operational costs so that they can allocate more resources

to their core business activities, according to the F&S Report.

We generate revenue primarily from sharing a portion of the gross billings of the sales of virtual items

on live streaming platforms, and to a lesser extent, from our short video business which we tapped into in

early 2018 leveraging a synergy with our live streaming business, as well as other services. We achieved

strong profitability during the Track Record Period. We recorded revenue of RMB50.2 million, RMB74.6

million and RMB83.0 million in 2017, 2018 and 2019, respectively, and net profit of RMB18.1 million,

RMB25.6 million and RMB32.5 million in the same periods, respectively.

BASIS OF PRESENTATION

We incorporated our Company on January 24, 2020. Prior to the incorporation of our Company and

the completion of the Reorganization, the [REDACTED] Business (as defined in the Accountant’s Report

in Appendix I to this document) was carried out by Happy Entertainment and its subsidiaries. Upon the

completion of the Reorganization, the non-restricted portion of the [REDACTED] Business was carried out

by Shenzhen Xinmiao (a wholly owned subsidiary of Happy Entertainment prior to the Reorganization) and

its subsidiaries, and the restricted portion of the [REDACTED] Business that is subject to foreign

investment restrictions in the PRC was carried out by Happy Entertainment and its subsidiaries. Our

Company ultimately controls Happy Entertainment, Shenzhen Xinmiao and their respective subsidiaries

through direct equity holding and Contractual Arrangements. See “Our History and Development” and

“Contractual

– 193 –



Arrangements” for details. The Reorganization was merely a recapitalization of the [REDACTED]Business and did not result in changes to our business substance, management or the ultimate beneficial

owners. Accordingly, the historical financial information of the companies now part of our Group is

presented using the carrying value of the [REDACTED] Business for all periods presented. Intercompany

transactions, balances and unrealized gains/losses on transactions between group companies are eliminated

on combination.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

We believe that our results of operations have been and will continue to be materially affected by

general factors affecting the live streaming industry in China and certain company-specific factors,

including the following.

General Development of Live Streaming Industry in China

China’s live streaming market is still in a fast development stage. The market size by total gross

billings is expected to grow from RMB108.2 billion in 2019 to RMB310.1 billion in 2024 at a CAGR of

23.4%, according to the F&S Report. Our results of operations are affected by the general conditions

affecting the live streaming industry in China, including the overall economic condition, the growing

penetration of mobile internet and mobile payment, the changes in demands and preferences of live

streaming audience, and the changes in applicable laws, regulations and governmental policies. See

“Industry Overview.” Our ability to anticipate and respond to potential changes in industry trends, such as

the emerging popularity of live streaming on mobile devices, the increasingly diversified monetization

channels, and the synergies between the live streaming industry and other internet celebrity economy

sectors, will have a significant impact on our future performance.

Our Ability to Maintain and Grow Our Streamer Pool

The growth of our streamer pool is a key driver for our success. We have developed our streamer pool

leveraging our sophisticated streamer grooming system to discover, train and promote streamers. We have

also acquired commercially viable streamers from third-party streamer associations. Additionally, we have

partnered with certain top streamers to jointly represent, develop and manage certain streamers through our

streamer associations. Our average monthly engaged streamers increased from over 3,600 in 2017 to over

4,000 in 2019, and our average monthly active streamers increased from approximately 980 in 2017 to

approximately 1,900 in 2019.

In addition, our business growth depended, in part, on a limited number of top streamers during the

Track Record Period. In 2017, 2018 and 2019, our top five streamers contributed approximately 29.1%,

32.2%, and 19.9% of our total revenue, respectively. The number of our top streamers (each generating

annual gross billings of more than RMB500,000) increased from over 130 as of December 31, 2017 to over

320 as of December 31, 2019. Our top streamers demonstrated a high level of loyalty during the Track

Record Period. For example, approximately 88% of our top streamers who generated gross billings of more

than RMB500,000 in 2018 remained as our engaged streamers in the fourth quarter of 2019. Meanwhile, we

plan to continue to reduce the streamer concentration and cost-effectively grow our streamer pool,

especially our active streamers.

We intend to continue to maintain and grow our streamer pool through organic growth and strategic

acquisitions to cultivate a deeper pool of streamers with various specialties and fan coverage and enrich our

– 194 –



content offerings. We will also continue the joint representation of streamers as an additional and replicable

channel to cost-effectively enlarge our streamer pool and enhance partnered top streamers’ loyalty to us.

Changes in Revenue Sharing Arrangements with Live Streaming Platforms and Streamers

During the Track Record Period, we generated substantially all of our revenues from revenue sharing

arrangements with live streaming platforms and streamers, representing 96.6%, 94.0% and 91.4% of our

total revenue in 2017, 2018 and 2019, respectively. Live streaming platforms determine the revenue sharing

ratio as a percentage of the gross billings from the sales of virtual items attributed to our streamers in their

standard platform policies and reserve the right to unilaterally modify the ratios from time to time. We

typically agree to adhere to the standard platform policies by signing up our streamer associations with the

live streaming platforms. Varying from one platform to another, we are ultimately entitled to record as our

revenue 3% to 25% of the gross billings from the sales of virtual items attributed to our streamers. See

“Business—Our Business and Revenue Sources—Revenue Sharing Arrangements with Live Streaming

Platforms and Streamers.” Our business, results of operations and financial condition could be materially

and adversely affected if any major live streaming platform we partner with modifies the revenue sharing

ratio and other arrangements to our disadvantage. Moreover, streamers may become dissatisfied with their

revenue sharing arrangements with us as they grow their popularity, and may request to re-negotiate such

terms, which could also adversely affect our business growth and results of operations. We intend to

continue to expand our partnered live streaming platforms and diversify our monetization channels to

manage the risk associated with potential negative changes in the revenue sharing arrangements with any

major live streaming platform or top streamer we partner with.

Our Ability to Develop and Diversify Monetization Channels

Our profitability depends largely on our ability to continuously explore more monetization

opportunities and expand our revenue sources. During the Track Record Period, we derived most of our

revenues from revenue sharing with partnered live streaming platforms and streamers. We tapped into the

short video market in early 2018 to develop short videos and incubate IP content, and intend to recruit

additional qualified personnel to expand our short video business. We also intend to strengthen cooperation

with e-commerce platforms and third-party merchants to offer sponsored product sales and advertising

services leveraging the “fan effect” out of our streamers’ influence. See “Business—Growth Strategies.”

Our diversification plans may require us to devote significant financial and managerial resources and may

not perform as expected due to a variety of factors beyond our control. In addition, as we monitor market

developments, we may adjust our monetization strategies from time to time, which could result in decreases

of our total revenues or revenue contributions from certain monetization channels. If we are not successful

in enhancing our existing monetization channels or developing new monetization approaches, we may not

be able to maintain or increase our revenues or recoup our investments in any new monetization initiatives,

which could materially and adversely affect our business, results of operations and financial condition.

Our Ability to Control Costs and Expenses

Our ability to effectively manage and control our costs and expenses while growing our streamer pool

and expanding our business portfolio will significantly affect our profitability. This includes our ability to,

among others, improve our operational efficiency, scale our business to achieve greater economies of scale,

and exploit monetization channels with higher returns. Our gross profit margin was 73.5%, 69.6% and

– 195 –



67.1% in 2017, 2018 and 2019, respectively, and our net profit margin was 36.1%, 34.3% and 39.2% in the

same periods, respectively, primarily due to the increase of our cost of services as a percentage of our total

revenue. We have taken, and will continue to take, various measures to further streamline and standardize

our operating procedures and minimize the variable costs associated with adding and promoting streamers,

such as to optimize our streamer grooming system, gradually reduce expenses to purchase promotional

resources, invest in technology and data analytics, and maximize the commercial potential for our streamers

for higher returns.

Strategic Investments and Acquisitions

We have made, and intend to continue to make, strategic acquisitions of commercially viable

streamers, streamer associations, streamer talent facilitators or agencies, short video production teams,

MCNs and other complementary businesses to grow our business. During the Track Record Period, our

significant business growth depended, in part, on acquisitions of streamer associations with popular

streamers and streaming channels on live streaming platforms, as well as individual streamers, to solidify

our strong presence in the general entertainment streaming market and facilitate our penetration into the

gaming live streaming market. We will continue to carefully evaluate and execute investment and

acquisition opportunities that complement our existing streamer pool or business portfolio, optimize our

profitability, or demonstrate synergies with our existing business. For example, we may invest in or acquire

other streamer talent facilitators or agencies with a distinctive presence in popular or emerging live

streaming genres. On the other hand, investments and acquisitions could result in the use of substantial

amounts of cash, potentially dilutive issuances of equity securities, substantial depreciation and significant

amortization expenses related to intangible assets, impairment losses, deferred compensation charges,

adverse tax consequences, significant diversion of management attention, incurrence of debt on unfavorable

terms and exposure to potential unknown liabilities of the acquired business. As a result, our ability to

effectively manage our strategic investment and acquisitions could materially affect our business growth

and results of operations.

Competition

The market for China’s live streamer associations is rapidly evolving, highly fragmented and intensely

competitive. In 2019, the top five players accounted for an aggregate market share of 13.1% in terms of net

revenue, according to the F&S Report. We face competition from a great number of live streamer

facilitators, talent agencies and other entertainment companies that focus on cultivating live streamers. We

expect intensified competition in the future from new market entrants as the industry continues to evolve.

As we continue to grow our business and increase our market share, our ability to compete effectively with

competitors is crucial to the sustainable growth of our business and results of operations. See “Industry

Overview” for details of the competitive landscape.

Seasonality

We have experienced, and expect to continue to experience, seasonality in our business. For example,

we generally experience a higher level of revenue in the fourth quarter of each year, as live streaming

platforms generally organize marketing campaigns, streamer contests and promotional campaigns towards

the year end, which stimulate viewer spending. Changes in seasonal trends may cause fluctuations in our

results of operations and financial condition, and any occurrence that disrupts our business during any

particular quarters could have a disproportionately material adverse effect.

– 196 –



SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

We have identified certain accounting policies, estimates and judgments that we believe are most

significant to the preparation of our combined financial statements. Our significant accounting policies,

estimates and judgments, which are important for understanding our financial condition and results of

operations, are set forth in Notes 2 and 4 to the Accountant’s Report in Appendix I to this document. Some

of our accounting policies involve subjective assumptions and estimates, as well as complex judgment

relating to accounting items. In each case, the determination of these items requires management judgment

based on information and financial data that may change in future periods. When reviewing our financial

statements, you should consider (1) our selection of critical accounting policies, (2) the judgment and other

uncertainties affecting the application of such policies, and (3) the sensitivity of reported results to changes

in conditions and assumptions.

Revenue Recognition

Revenue from rendering live streamers management services

We provide live streamer incubation and management services, and generate a substantial portion of

our revenues from sharing a portion of the gross billings from the sales of virtual items attributed to our

streamers on live streaming platforms. The revenue sharing ratio for us varies from one platform to another,

and typically ranges from 3% to 25% of the gross billings from the sales of virtual items attributed to our

streamers.

Revenue generated from rendering live streamer management services is recognized over the

accounting period in which such services are rendered. The benefits generated from our services are

simultaneously received and consumed by our streamers and partnered live streaming platforms. The

consideration is variable and highly susceptible to the sales of virtual items by live streaming platform, the

possible amount of which will be in a broad range. As such, we recognize the consideration as revenue

when the uncertainty is resolved, being the completion of our streamer’s performance. We report such

revenue on a net basis.

Revenue from licensing of short video contents

We derive revenue from licensing our self-produced short video contents to short video and social

media platforms, which consists of variable incentive fees calculated based on the number of video views

on such platforms. Revenue from licensing of short video contents is recognized over the period during

which the short video and social media platforms simultaneously receive and consume the benefits provided

by our short video contents.

Intangible Assets

Software

We capitalize the computer software licenses we acquired based on the costs incurred to acquire the

specific software and bring it into use. The costs are amortized using the straight-line method over their

estimated useful lives which ranges from three to five years. We recognize costs associated with

maintenance of software programs as expenses once incurred.

– 197 –



Exclusive agency contracts

We state our exclusive agency contracts with live streamers at historical cost minus accumulated

amortization, net of any impairment. Historical costs include expenditure directly attributable to the

acquisition of the contract, which mainly represents the signing bonus payable to live streamers and the

purchase price payable to the transferors, if applicable. The costs are amortized using the straight-line

method over the contract term agreed with each streamer which typically ranges from one to six years. If a

streamer extends the contract term prior to expiration of the original term, the remaining carrying amount of

the original contract at the extension date and the cost incurred for the extension, if any, will be amortized

over the new contract term.

Acquired streamer associations

A streamer association established on a live streaming platform bonds a certain number of streamers

and allow them to perform on that platform. We state acquired streamer associations at historical cost minus

accumulated amortization, net of any impairment. The acquisition cost is capitalized at historical cost upon

acquisition and is amortized using the straight-line method over the estimated useful life of each streamer

association which range from five to 10 years.

We determined the estimated useful lives of the streamer association based on the shorter of the length

of the expected term of contracts we entered into with major streamers in that streamer association and the

estimated time period during which we intend to derive future economic benefits from the use of the assets.

A 10% decrease or increase in the estimated useful lives of the streamer association would increase the

amortization charge by approximately RMB272,000, RMB443,000 and RMB463,000 or decrease the

amortization charge by approximately RMB223,000, RMB363,000 and RMB379,000 for 2017, 2018 and

2019, respectively.

Fair Value Estimation

We made judgments and estimates in determining the fair value of financial instruments that are

recognized and measured at fair value in the financial statements. To provide an indication about the

reliability of the inputs used in determining fair value, we have classified our financial instruments into

three levels prescribed under the accounting standards. Our policy is to recognize transfers into and

transfers out of fair value hierarchy levels as at the end of each reporting period.

As of December 31, 2017, 2018 and 2019, we had only level three instruments, which mainly

included investments in film and television series production. As these instruments are not traded in an

active market, their fair value has been determined using applicable valuation techniques, primarily

including discounted cash flows approach. Key assumptions used in the valuation primarily included the

projected box office amount per channel (for films) and projected selling price per episode (for TV series)

with reference to similar films and TV series recently released. See Note 3.3 to the Accountant’s Report in

Appendix I to this document for details.

– 198 –



DESCRIPTION OF MAJOR PROFIT OR LOSS LINE ITEMS

The following table sets forth a summary of our combined statements of comprehensive income of our

Group for the periods indicated.

Year ended December 31,

2017 2018 2019

RMB % RMB % RMB %

(RMB in thousands, except for percentages)Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,222 100.0 74,609 100.0 83,022 100.0Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,322) (26.5) (22,715) (30.4) (27,280) (32.9)Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,900 73.5 51,894 69.6 55,742 67.1Selling and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (260) (0.5) (197) (0.3) (167) (0.2)General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,449) (22.8) (16,475) (22.1) (17,882) (21.5)Other income and other gains—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,636 3.2 999 1.3 4,463 5.4Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,827 53.4 36,221 48.5 42,156 50.8Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 0.1 100 0.2 87 0.1Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (186) (0.2) (225) (0.2) (198) (0.2)Finance costs—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (147) (0.2) (125) (0.1) (111) (0.1)Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,680 53.1 36,096 48.4 42,045 50.6Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,535) (17.0) (10,525) (14.1) (9,508) (11.4)

Profit and total comprehensive income attributable to— Owners of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,998 27.9 19,893 26.7 27,453 33.1— Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,147 8.2 5,678 7.6 5,084 6.1

18,145 36.1 25,571 34.3 32,537 39.2

Revenue

We generated revenue primarily from our live streamers management services, and to a lesser extent,

licensing of short video contents and other services. The following table sets forth a breakdown of our

revenue by business lines, both in absolute amount and as a percentage of our total revenue, for the periods

indicated.


2017 2018 2019

RMB % RMB % RMB %

(RMB in thousands, except for percentages)Live streamers management services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,522 96.6 70,137 94.0 75,847 91.4Licensing of short video contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 2,555 3.4 5,033 6.1Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700 3.4 1,917 2.6 2,142 2.5

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,222 100.0 74,609 100.0 83,022 100.0

We generated RMB48.5 million, RMB70.1 million and RMB75.8 million in revenue from our live

streamers management services in 2017, 2018 and 2019, respectively, representing 96.6%, 94.0% and

91.4% of our total revenue in the same periods, respectively. We derive revenue primarily from sharing a

portion of the gross billings from the sales of virtual items attributed to our streamers on live streaming

platforms. We are typically entitled to record as our revenue 3% to 25% of the gross billings from the sales

of virtual items attributed to our streamers. To a much lesser extent, we also share with streamers the

incentive fees paid by live streaming platforms in recognition of their KPI fulfillment, such as targeted

– 199 –



streaming hours or gross billings. In addition, we sometimes receive commission from live streaming

platforms in recognition of the high retention rate of streamers registered in our streamer associations.

We generated nil, RMB2.6 million and RMB5.0 million in revenue from licensing of short video

contents in 2017, 2018 and 2019, respectively, representing nil, 3.4% and 6.1% of our total revenue in the

same periods, respectively. We primarily derive revenue from incentive fees based on the number of video

views paid by short video or social media platforms.

We generated RMB1.7 million, RMB1.9 million and RMB2.1 million in revenue from other services

in 2017, 2018 and 2019, respectively, representing 3.4%, 2.6% and 2.5% of our total revenue in the same

periods, respectively. We primarily derive revenue from sharing a commission from the product sales

generated from streaming activities or short videos, or advertising fees from brand owners and third-party

merchants. We also share with our streamers a portion of their income generated from offline performing

activities. Furthermore, we earn transfer fees by transferring streamers to third-party streamer associations.

Cost of Services

Our cost of services was RMB13.3 million, RMB22.7 million and RMB27.3 million in 2017, 2018

and 2019, respectively. The following table sets forth a breakdown of our cost of services by business lines,

both in absolute amount and as a percentage of total cost of services, for the periods indicated.


2017 2018 2019

RMB % RMB % RMB %

(RMB in thousands, except for percentages)Live streamers management services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,772 88.4 21,339 93.9 24,579 90.1Licensing of short video contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 446 2.0 1,160 4.2Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,550 11.6 930 4.1 1,541 5.7

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,322 100.0 22,715 100.0 27,280 100.0

Our cost of services primarily consisted of employee benefit expenses, depreciation and amortization,

outsourcing expenses, commission to streamers in relation to short video business, and short-term lease

payments and property management expenses. The following table sets forth a breakdown of our cost of

services by nature, both in absolute amount and as a percentage of total cost of services, for the periods

indicated.


2017 2018 2019

RMB % RMB % RMB %

(RMB in thousands, except for percentages)Employee benefit expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,389 25.4 7,486 33.0 9,747 35.7Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,419 33.2 6,849 30.2 8,388 30.7Outsourcing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,102 23.3 5,195 22.9 5,376 19.7Commissions paid/payable to live streamers in relation to short video

business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 386 1.7 1,012 3.7Short-term lease payments and property management expenses . . . . . . . 617 4.6 587 2.6 602 2.2Others(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,795 13.5 2,212 9.6 2,155 8.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,322 100.0 22,715 100.0 27,280 100.0

– 200 –



(1) Include primarily traveling expenses, tax and surcharges, office expenses, content production expenses, on-premise streamingroom expenses, and other non-recurring expenses associated with the provision of our services.

Our employee benefit expenses primarily consisted of salaries, bonuses, social insurance and other

benefits paid to our operational staff. Our depreciation and amortization primarily consisted of depreciation

and amortization of intangible assets, mainly including exclusive agency contracts and acquired streamer

associations, fixed assets and right-of-use assets. Our outsourcing expenses represented the service fees we

paid to third-party service providers and temps for certain auxiliary functions.

During the Track Record Period, our employee benefit expenses represented a major component of

our cost of services, accounting for 25.4%, 33.0% and 35.7% of our total cost of services in 2017, 2018 and

2019, respectively. In addition, our depreciation and amortization accounted for 33.2%, 30.2% and 30.7%

of our cost of services for the same periods, respectively. The following sensitivity analysis illustrates the

impact of hypothetical fluctuation in our employee benefit expenses and depreciation and amortization on

our gross profit with other variables held constant during the Track Record Period. Fluctuations are

assumed to be 10% and 20% for the employee benefit expenses and depreciation and amortization for each

of the periods indicated. The analysis below is intended for reference only, and any variation may differ

from the amount indicated.


2017 2018 2019

Change ingross profit(RMB)

Change ingross profitmargin (%)





(RMB in thousands, except for percentages)Change in employee benefitexpenses

+20% . . . . . . . . . . . . . . . . . . . . . . . (678) (1.8) (1,497) (2.9) (1,949) (3.5)+10% . . . . . . . . . . . . . . . . . . . . . . . (339) (0.9) (749) (1.4) (975) (1.7)-10% . . . . . . . . . . . . . . . . . . . . . . . . 339 0.9 749 1.4 975 1.7-20% . . . . . . . . . . . . . . . . . . . . . . . . 678 1.8 1,497 2.9 1,949 3.5Change in depreciation andamortization

+20% . . . . . . . . . . . . . . . . . . . . . . . (884) (2.4) (1,370) (2.6) (1,678) (3.0)+10% . . . . . . . . . . . . . . . . . . . . . . . (442) (1.2) (685) (1.3) (839) (1.5)-10% . . . . . . . . . . . . . . . . . . . . . . . . 442 1.2 685 1.3 839 1.5-20% . . . . . . . . . . . . . . . . . . . . . . . . 884 2.4 1,370 2.6 1,678 3.0

– 201 –



Gross Profit and Gross Profit Margin

Our gross profit was RMB36.9 million, RMB51.9 million and RMB55.7 million in 2017, 2018 and

2019, respectively. Our gross profit margin was 73.5%, 69.6% and 67.1% for the same periods,

respectively. The following table sets forth a breakdown of our gross profit and gross profit margin by

business lines for the periods indicated.


2017 2018 2019

Gross profit(RMB)

Gross profitmargin (%)

Gross profit(RMB)


Gross profit(RMB)


(RMB in thousands, except for percentages)Live streamers management services . . 36,750 75.7 48,798 69.6 51,268 67.6Licensing of short video contents . . . . . — — 2,109 82.5 3,873 77.0Other services . . . . . . . . . . . . . . . . . . . . 150 8.8 987 51.5 601 28.1

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,900 73.5 51,894 69.6 55,742 67.1

Selling and Marketing Expenses

We had selling and marketing expenses of RMB0.3 million, RMB0.2 million and RMB0.2 million in

2017, 2018 and 2019, respectively, which consisted of advertising and promotion expenses.

General and Administrative Expenses

We had general and administrative expenses of RMB11.4 million, RMB16.5 million and RMB17.9

million in 2017, 2018 and 2019, respectively. Our administrative expenses primarily consisted of employee

benefits for our administrative staff, depreciation and amortization, professional service fees,

[REDACTED], short-term lease payments and property management expenses, and entertainment

expenses. The following table sets forth a breakdown of our administrative expenses, both in absolute

amount and as a percentage of total administrative expenses, for the periods indicated.


2017 2018 2019

RMB % RMB % RMB %

(RMB in thousands, except for percentages)Employees benefit

expenses . . . . . . . . . . . . . 7,325 64.0 8,997 54.6 9,243 51.7Depreciation and

amortization . . . . . . . . . . . 942 8.2 1,679 10.2 2,079 11.6Professional service fees . . . 671 5.9 1,138 6.9 2,095 11.7[REDACTED] . . . . . . . . . . [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]Short-term lease payments

and property managementexpenses . . . . . . . . . . . . . 623 5.4 919 5.6 529 3.0

Entertainment expenses . . . . 492 4.3 1,542 9.4 738 4.1Traveling expenses . . . . . . . 667 5.8 949 5.8 644 3.6Office expenses . . . . . . . . . . 402 3.5 685 4.2 635 3.6Others(1) . . . . . . . . . . . . . . . . 327 2.9 566 3.3 286 1.6

Total . . . . . . . . . . . . . . . . . . 11,449 100.0 16,475 100.0 17,882 100.0

(1) Include primarily other non-recurring expenses associated with administrative activities.

– 202 –



Other Income and Other Gains, Net

We had other income and other gains, net of RMB1.6 million, RMB1.0 million and RMB4.5 million

in 2017, 2018 and 2019, respectively, which primarily consisted of fair value gains on investments in film

and television series production, gains on disposal of subsidiaries, government grants and investment return

from wealth management products, partially offset by losses on disposal of equipment and losses on

disposal of intangible assets. The following table sets forth a breakdown of our other income and gains, net,

both in absolute amount and as a percentage of total other income and gains, net, for the periods indicated.


2017 2018 2019

RMB % RMB % RMB %

(RMB in thousands, except for percentages)Other incomeGovernment grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 3 0.3 1,158 25.9Other gains/(losses)Gains on disposal of a subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,672 102.2 – – – –Fair value gains on investments in film and television series production . . . 299 18.3 940 94.1 3,288 73.7Investment return from wealth management products . . . . . . . . . . . . . . . . . . 287 17.5 – – 98 2.2Losses on disposal of property, plant and equipment . . . . . . . . . . . . . . . . . . (9) (0.6) (123) (12.3) (203) (4.6)(Losses)/gains on termination and disposal of intangible assets . . . . . . . . . . (231) (14.1) 210 21.0 215 4.8Gains on early termination of lease contracts . . . . . . . . . . . . . . . . . . . . . . . . – – 54 5.4 25 0.6Others(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (382) (23.3) (85) (8.5) (118) (2.6)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,636 100.0 999 100.0 4,463 100.0

(1) Include primarily losses on deposits in relation to early termination of certain lease contracts.

Finance Costs, net

We had finance income of RMB39,000, RMB100,000 and RMB87,000 in 2017, 2018 and 2019,

respectively, which consisted of interest income on bank deposits. We had finance costs of RMB186,000,

RMB225,000 and RMB198,000 in 2017, 2018 and 2019, respectively, which mainly consisted of interest

expenses on leasing liabilities. As a result, we had finance costs, net of RMB147,000, RMB125,000 and

RMB111,000 in 2017, 2018 and 2019, respectively.

Income Tax Expense

Pursuant to the EIT Law and related regulations, enterprises which operate in China are subject to

enterprise income tax at a rate of 25% on their taxable profits. During the Track Record Period, Happy

Entertainment and certain other Consolidated Affiliated Entities were subject to a preferential income tax

rate of 20% as they were accredited as small low-profit enterprises. For risks relating to our preferential tax

treatments, see “Risk Factors — Risks Relating to Our Business and Industry — The discontinuation of any

preferential tax treatments available to us in China could adversely affect our results of operations and

financial condition.”

We had income tax expense of RMB8.5 million, RMB10.5 million and RMB9.5 million in 2017, 2018

and 2019, respectively. Our effective tax rate, as calculated by dividing income tax expense by profit before

income tax, was 32.0% and 29.2% in 2017 and 2018, respectively, which was above the 25% statutory rate,

– 203 –



primarily due to the add-back of non-deductible expenses to our tax base, including (1) the amortization of

our acquisition costs of certain third-party streamer associations, and (2) certain business entertainment

expenses. Our effective tax rate was 22.6% in 2019, which was below the 25% statutory rate, primarily due

to the utilization of previously unrecognized tax losses.

During the Track Record Period and up to the Latest Practicable Date, we had paid all relevant taxes

when due and there were no matters in dispute or unresolved with the relevant tax authorities.

Profit and Total Comprehensive Income for the Year

Our profit and total comprehensive income was RMB18.1 million, RMB25.6 million and RMB32.5

million in 2017, 2018 and 2019, respectively. Our net profit margin was 36.1%, 34.3% and 39.2% for the

same periods, respectively.

PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenue

Our revenue increased by 11.3% from RMB74.6 million in 2018 to RMB83.0 million in 2019 for the

following reasons.

• Live streamers management services. Our revenue generated from live streamers management

services increased by 8.1% from RMB70.1 million in 2018 to RMB75.8 million in 2019,

primarily due to the increase in revenue generated from our gaming live streaming activities as a

result of (1) our enlarged pool of gaming streamers, in part due to our acquisition of a third-party

company with multiple experienced gaming streamers in August 2018, (2) the significant growth

of gross billings generated by our top gaming streamers, and (3) the increased incentive fees

paid by partnered live streaming platforms in recognition of the KPI fulfillment of our top

gaming streamers.

• Licensing of short video contents. Our revenue generated from licensing of short video contents

increased by 92.3% from RMB2.6 million in 2018 to RMB5.0 million in 2019, primarily due to

the increases in (1) the number of our active accounts on short video platforms resulting from

our incubation efforts since our penetration into the short video market in early 2018, and (2) the

click-through rate of the short videos we produced for our streamers and short video creators,

driven by the increased popularity of our streamers and short video creators and our enhanced

content production capabilities.

• Other services. Our revenue generated from other services increased by 10.5% from RMB1.9

million in 2018 to RMB2.1 million in 2019, primarily due to the increases in our revenue

generated from (1) content marketing services through short videos, and (2) transfers of

streamers.

Cost of services

Our cost of services increased by 20.3% from RMB22.7 million in 2018 to RMB27.3 million in 2019,

primarily due to the increases in (1) the headcount of our employees to support our business growth, (2) the

– 204 –



salary level of our employees to retain qualified personnel, (3) the depreciation and amortization related to

our acquisitions of streamers and live streaming channels from third-party streamer associations and our

increased investment in fixed assets for new subsidiaries, and (4) commission paid to streamers in line with

the increased incentive fees we earned from licensing of short video contents.

• Live streamers management services. Our cost of services related to live streamers management

services increased by 15.5% from RMB21.3 million in 2018 to RMB24.6 million in 2019.

• Licensing of short video contents. Our cost of services related to licensing of short video

contents increased significantly from RMB0.4 million in 2018 to RMB1.2 million in 2019.

• Other services. Our cost of services related to other services increased by 66.7% from

RMB0.9 million in 2018 to RMB1.5 million in 2019.

Gross profit and gross profit margin

As a result of the foregoing, our gross profit increased by 7.3% from RMB51.9 million in 2018 to

RMB55.7 million in 2019. Our gross profit margin decreased from 69.6% in 2018 to 67.1% in 2019,

primarily due to the following reasons.

• Live streamers management services. Our gross profit for live streamers management services

increased by 5.1% from RMB48.8 million in 2018 to RMB51.3 million in 2019. The

corresponding gross profit margin decreased from 69.6% in 2018 to 67.6% in 2019, primarily

due to the increased revenue contribution as a percentage of our total revenue from a number of

partnered live streaming platforms featuring a relatively lower gross profit margin as we sought

to enlarge and diversify our customer base.

• Licensing of short video contents. Our gross profit for licensing of short video contents increased

by 85.7% from RMB2.1 million in 2018 to RMB3.9 million in 2019. The corresponding gross

profit margin decreased from 82.5% in 2018 to 77.0% in 2019, primarily due to (1) the increase

in our short video production cost resulting from our pursuit of high-quality content offering,

and (2) the reduced subsidies paid by platforms to incentivize content offering, which is a

natural progression as the market matures.

• Other services. Our gross profit for other services decreased by 40.0% from RMB1.0 million in

2018 to RMB0.6 million in 2019, and the corresponding gross profit margin decreased from

51.5% in 2018 to 28.1% in 2019, primarily due to our increased expenditure to expand our

content marketing services, including building up a team specialized in this realm.

Selling and marketing expenses

Our selling and marketing expenses remained relatively stable at RMB0.2 million in 2018 and 2019,

respectively.

General and administrative expenses

Our general and administrative expenses increased by 8.5% from RMB16.5 million in 2018 to

RMB17.9 million in 2019, primarily due to (1) the [REDACTED] expenses incurred in connection with the

– 205 –



preparation of the [REDACTED] in 2019, (2) the increase in the professional service fees, including annual

service fees charged in proportion to our business scale and additional consultation fees related to our

regulatory compliance and litigation matters, (3) the increase in depreciation and amortization related to our

investment in fixed assets, and (4) the increase in the employee benefit expenses in line with our business

growth, partially offset by the decreases in business entertainment expenses and traveling expenses as a

result of our cost control measures.

Other income and other gains, net

Our other income and other gains, net increased significantly from RMB1.0 million in 2018 to

RMB4.5 million in 2019, primarily due to (1) the increase in fair value gains on investments in film and

television series production from RMB0.9 million in 2018 to RMB3.3 million in 2019, and (2) our receipt

of government grants of RMB1.2 million in 2019, mainly representing income from additional deduction of

input value-added tax pursuant to the relevant tax regulations.

Income tax expense

Our income tax expense decreased by 9.5% from RMB10.5 million in 2018 to RMB9.5 million in

2019, primarily due to the significant increase in the utilization of previously unrecognized tax losses in

2019.

Profit and total comprehensive income for the year

As a result of the foregoing, our profit and total comprehensive income for the year increased by

27.0% from RMB25.6 million in 2018 to RMB32.5 million in 2019, and our net profit margin increased

from 34.3% in 2018 to 39.2% in 2019.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Revenue

Our revenue increased by 48.6% from RMB50.2 million in 2017 to RMB74.6 million in 2018 for the

following reasons.

• Live streamers management services. Our revenue generated from live streamers management

services increased by 44.5% from RMB48.5 million in 2017 to RMB70.1 million in 2018,

primarily due to the increases in (1) the number of live streaming platforms we collaborated

with, (2) revenue generated from existing partnered live streaming platforms, especially

Company C, a top customer during the Track Record Period, as we deepened our cooperation

with these platforms by having an increased number of active streamers and top streamers

perform on these platforms, and (3) revenue generated from gaming live streaming activities in

2018 as a result of our efforts in penetrating the gaming live streaming market by, among others,

acquiring a third-party company with experienced gaming streamers in August 2018.

• Licensing of short video contents. Our revenue generated from licensing of short video contents

was nil and RMB2.6 million in 2017 and 2018, respectively, as we began our short video

business in early 2018 to diversify our monetization channels.

– 206 –



• Other services. Our revenue generated from other services increased by 11.8% from RMB1.7

million in 2017 to RMB1.9 million in 2018, primarily due to (1) our commencement of content

marketing services in 2018, and (2) the increases in our revenue generated from streamers’

offline performing activities and transfers of streamers.

Cost of services

Our cost of services increased by 70.7% from RMB13.3 million in 2017 to RMB22.7 million in 2018,

primarily due to the increases in (1) the headcount of our employees to support our business growth, (2) the

salary level of our employees to retain qualified personnel, (3) the depreciation and amortization related to

our acquisitions of streamers and live streaming channels from third-party streamer associations and our

increased investment in fixed assets for new subsidiaries, and (4) the outsourcing expenses in relation to the

establishment of several new subsidiaries in 2018.

• Live streamers management services. Our cost of services related to live streamers management

services increased by 80.5% from RMB11.8 million in 2017 to RMB21.3 million in 2018.

• Licensing of short video contents. Our cost of services related to licensing of short video

contents was nil and RMB0.4 million in 2017 and 2018, respectively.

• Other services. Our cost of services related to other services decreased by 43.8% from

RMB1.6 million in 2017 to RMB0.9 million in 2018.

Gross profit and gross profit margin

Our gross profit increased by 40.7% from RMB36.9 million in 2017 to RMB51.9 million in 2018. Our

gross profit margin decreased from 73.5% in 2017 to 69.6% in 2018, primarily due to the following reasons.

• Live streamers management services. Our gross profit for live streamers management services

increased by 32.6% from RMB36.8 million in 2017 to RMB48.8 million in 2018. The

corresponding gross profit margin decreased from 75.7% in 2017 to 69.6% in 2018, primarily

due to (1) the increase in headcount and salary level of our employees driven by our business

growth, and (2) the increased revenue contribution as a percentage of our total revenue from a

number of partnered live streaming platforms featuring a relatively lower gross profit margin as

we sought to enlarge and diversify our customer base.

• Licensing of short video contents. Our gross profit for licensing of short video contents was nil

and RMB2.1 million in 2017 and 2018, respectively, and the corresponding gross profit margin

was nil and 82.5% in 2017 and 2018, respectively.

• Other services. Our gross profit for other services increased significantly from RMB0.2 million

in 2017 to RMB1.0 million in 2018, and the corresponding gross profit margin increased from

8.8% in 2017 to 51.5% in 2018, primarily due to the profits we generated from content

marketing services following the adjustment of our business strategies in 2018.

Selling and marketing expenses

Our selling and marketing expenses decreased by 33.3% from RMB0.3 million in 2017 to RMB0.2

million in 2018.

– 207 –



General and administrative expenses

Our general and administrative expenses increased by 44.7% from RMB11.4 million in 2017 to

RMB16.5 million in 2018, primarily due to the increases in (1) the employee benefit expenses driven by the

increases in headcount to support our business expansion and the salary level of our employees to retain

qualified personnel, (2) the business entertainment expenses driven by our business expansion, particularly

in relation to our efforts to deepen collaboration with existing partnered live streaming platforms in 2018,

(3) the depreciation and amortization related to our increased investment in fixed assets for newly

established subsidiaries in 2018, and (4) the professional service fees, including annual service fees charged

in proportion to our business scale and additional consultation fees related to our regulatory compliance and

litigation matters.

Other income and other gains, net

Our other income and other gains, net decreased by 37.5% from RMB1.6 million in 2017 to RMB1.0

million in 2018, primarily due to our non-recurring gains on disposal of a subsidiary of RMB1.7 million in

2017, partially offset by the increase in fair value gains on investments in film and television series

production from RMB0.3 million in 2017 to RMB0.9 million in 2018.

Income tax expense

Our income tax expense increased by 23.5% from RMB8.5 million in 2017 to RMB10.5 million in

2018, primarily due to the increase in our taxable income.

Profit and total comprehensive income for the year

As a result of the foregoing, our profit and total comprehensive income for the year increased by

41.4% from RMB18.1 million in 2017 to RMB25.6 million in 2018, and our net profit margin decreased

from 36.1% in 2017 to 34.3% in 2018.

– 208 –



DISCUSSION OF MAJOR BALANCE SHEET LINE ITEMS

The following table sets forth a summary of our combined statements of balance sheets as of the dates

indicated.

As of December 31,

2017 2018 2019

(RMB in thousands)NON-CURRENT ASSETS

Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,502 4,176 2,830Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,459 3,369 2,637Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,808 38,763 35,766Financial assets at fair value through profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,299 14,239 16,634Prepayments for non-concurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 231 89Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 957 2,806

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,188 61,735 60,762

CURRENT ASSETSTrade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,259 25,310 28,443Amounts due from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,760 3,120 2,660Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,449 29,267 55,111

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,468 57,697 86,214

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,656 119,432 146,976

EQUITY AND LIABILITIESEquity attributable to owners of the CompanyCombined capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,333 33,333 33,333Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,630 17,561 23,077Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,802 31,751 53,366Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,986 17,215 13,481Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,751 99,860 123,257

NON-CURRENT LIABILITIESLease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,409 2,240 1,337Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 310 –Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,484 2,550 1,337

CURRENT LIABILITIESOther payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,279 8,600 10,481Current income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,106 6,477 10,595Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,036 1,945 1,306

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,421 17,022 22,382

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,905 19,572 23,719

TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,656 119,432 146,976

– 209 –



Intangible Assets

Our intangible assets consisted of software, acquired streamer associations and exclusive agency

contracts with live streamers. We had intangible assets of RMB34.8 million, RMB38.8 million and

RMB35.8 million as of December 31, 2017, 2018 and 2019, respectively. The following table sets forth the

components of our intangible assets as of the dates indicated.

As of December 31,

2017 2018 2019

(RMB in thousands)Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 24 101Acquired streamer associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,669 30,404 26,238Exclusive agency contracts with live streamers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,096 8,335 9,427Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,808 38,763 35,766

The increase in our intangible assets from December 31, 2017 to December 31, 2018 was primarily

due to the increases in the number of our exclusive agency contracts with streamers and our acquired

streamer associations. The decrease in our intangible assets from December 31, 2018 to December 31, 2019

was primarily due to (1) the slowdown of our acquisition of third-party streamer associations, and (2) the

amortization of our existing intangible assets.

Financial Assets at Fair Value through Profit or Loss

We had financial assets at fair value through profit or loss of RMB10.3 million, RMB14.2 million and

RMB16.6 million as of December 31, 2017, 2018 and 2019, respectively, which consisted of our financial

investments in certain film and television series production in China. The increase in our financial assets at

fair value through profit or loss from December 31, 2017 to December 31, 2018 was primarily due to our

increased investments in film and television series production. The continued increase from December 31,

2018 to December 31, 2019 was primarily due to the increased fair value of our invested film and television

series production.

During the Track Record Period, we purchased principal-protected structured deposit products issued

by certain commercial banks in China in an aggregate amount of RMB111 million using our surplus cash,

which were open-ended and could be redeemed at any time or had a maturity term of not more than six

months. The expected annual investment return rates of these products ranged from 1.5% to 2%.

We may continue to invest in similar wealth management products in the future using our surplus

cash. Our Board and the finance department are mainly responsible for making, implementing and

supervising our investment decisions. During the Track Record Period, we had implemented the following

investment and treasury policies:

• our Board is responsible for the overall planning and approval of our investment projects;

• our finance department are responsible for the analysis and research of investment projects, as

well as the long-term routine management of debt and equity investment projects, including

supervising the results of operations and financial status of the investee, monitoring the

investee’s profitability and performing regular investment analysis;

– 210 –



• investments could be made when we have surplus cash that is not required for our short-term

working capital purposes;

• we mainly make investments in short-term wealth management products with low risk, high

liquidity and reasonable returns; and

• we assess the risk associated with the underlying financial instruments based on the risk

classification provided by the issuing licensed commercial bank.

We intend to adopt new investment policy upon the [REDACTED] in accordance with applicable

Listing Rules, including complying with relevant size test requirements under Chapter 14 of the Listing

Rules. Going forward, we plan to strictly implement our investment and treasury policy and, as part of our

investment and treasury management, may continue to make equity investments and purchase short-term

wealth management products with low risk, high liquidity and reasonable returns in the view of our

Directors after the [REDACTED]. However, we do not expect to make investments in listed equity

securities and stocks.

Deferred Income Tax Assets

Our deferred income tax assets relate to deductible temporary differences between the tax bases of

assets and liabilities and their carrying amounts to the extent that the utilization of such differences and

losses against future taxable profits is probable. We had deferred tax assets of RMB35,000, RMB1.0 million

and RMB2.8 million as of December 31, 2017, 2018 and 2019, respectively.

Trade and Other Receivables

During the Track Record Period, our trade receivables primarily represented amounts due from

partnered live streaming platforms and a live streamer. We also had other receivables primarily consisting

of payments on behalf of and advances to streamers, receivables due from non-controlling interests and

deposits.

– 211 –



Our trade and other receivables were RMB18.3 million, RMB25.3 million and RMB28.4 million as of

December 31, 2017, 2018 and 2019, respectively, generally consistent with our business growth during the

Track Record Period. Our trade and other receivables as of December 31, 2017, 2018 and 2019 were all

denominated in RMB, unsecured, repayable on demand and interest-free. The following table sets forth the

components of our trade and other receivables as of the dates indicated.

As of December 31,

2017 2018 2019

(RMB in thousands)Included in current assetsTrade receivables— Due from live streaming platform operators 9,723 10,896 11,637— Due from a live streamer – 3,002 5,356

9,723 13,898 16,993

Other receivables— Payments on behalf of and advances to live streamers 5,367 7,069 1,533— Staff advances 225 648 484— Due from non-controlling interests 500 1,078 1,078— Input value-added tax available for future deduction 250 249 384— Deposits 454 712 640— Receivable from disposal of investment in a film and television series

production – – 950— Receivable from termination and disposal of intangible assets 102 – 10— Others 518 301 263

7,416 10,057 5,342

Prepayments for professional services 160 157 173Prepayments for short-term lease and property management fees 33 290 248Prepayments for promotion expenses 172 – —[REDACTED] [REDACTED] [REDACTED] [REDACTED]Prepayments to a live streaming platform operator for talent recruitment 663 663 663Others 92 245 252

1,120 1,355 6,108

18,259 25,310 28,443

Included in non-current assetsPrepayments for non-current assets 85 231 89

During the Track Record Period, we typically granted to our partnered live streaming platforms a

credit period of 30 days. The following table sets forth an aging analysis of our trade receivables as of the

dates indicated.

As of December 31,

2017 2018 2019

(RMB in thousands)Within 30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,692 11,401 11,62931 to 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 520 27591 to 180 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 972 951181 to 365 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,005 1,129One year to two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 3,009

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,723 13,898 16,993

– 212 –



As of December 31, 2017, 2018 and 2019, approximately 99.7%, 82.0% and 68.4% of our trade

receivables were aged less than 30 days. The increase in our trade receivables aged more than 30 days was

primarily due to the revenue sharing receivables pursuant to the exclusive agency contract between us and a

live streamer, which were overdue because of our dispute with the streamer. In October 2018, we filed a

civil action against this streamer, alleging the streamer’s breach of the exclusive talent agency agreement

with us and seeking full payment of the receivable amount under the agreement plus liquidated damages. In

December 2019, the court ruled in favor of us and ordered the streamer to pay the full receivable amount

and liquidated damages. The streamer subsequently appealed, and the proceeding was still in progress as of

the Latest Practicable Date. Approximately 98.8% and 99.9% of our trade receivables aged more than 30

days as of December 31, 2018 and 2019, respectively, were receivables from the concerned streamer.

Considering the court’s first trial decision, the opinion of our legal counsel, and the streamer’s sound

financial condition and ability to make the payment, our Directors considered that such amount would be

fully recoverable and, therefore, no credit loss allowance had been recognized against these receivables.

We apply a simplified approach to provide for expected credit losses pursuant to HKFRS 9, which

permits the use of the lifetime expected credit losses for all trade receivables. To measure the expected

credit losses, trade receivables have been grouped based on shared credit risk characteristics and past due

days. See Note 3.1(b) to the Accountant’s Report in Appendix I to this document for details.

The following table sets forth the number of our trade receivables turnover days for the periods

indicated.

Year ended December 31,2017 2018 2019

Trade receivables turnover days(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 58 68

(1) Trade receivables turnover days were calculated based on the average of opening and closing balance of trade receivables forthe relevant year, divided by the revenue for the same year, and multiplied by the number of days in that year.

Our trade receivables turnover days decreased from 68 days in 2017 to 58 days in 2018, primarily due

to the significant increase in our revenue from 2017 to 2018, which outpaced the increase in our trade

receivables. Our trade receivables turnover days increased from 58 days in 2018 to 68 days in 2019,

primarily due to the pending collection of the trade receivables due from a live streamer, as discussed

above.

As of April 30, 2020, approximately RMB11.1 million, or 65.4%, of our trade receivables as of

December 31, 2019 had been settled.

Our other receivables increased by 36.5% from RMB7.4 million as of December 31, 2017 to

RMB10.1 million as of December 31, 2018, primarily due to the increases in (1) payments on behalf of and

advances to streamers in connection with their promotion during some partnered live streaming platforms’

annual carnivals, and (2) other receivables due from non-controlling interests in connection with their

capital injection to some of our new subsidiaries established in 2018. Our other receivables decreased by

47.5% from RMB10.1 million as of December 31, 2018 to RMB5.3 million as of December 31, 2019,

primarily due to the decrease in payments on behalf of and advances to streamers as we no longer make

such payments for streamers.

– 213 –



Cash and Cash Equivalents

We had cash and cash equivalents of RMB15.4 million, RMB29.3 million and RMB55.1 million as of

December 31, 2017, 2018 and 2019, respectively, which primarily consisted of cash at banks.

Other Payables

Our other payables primarily consisted of payroll payable to employees, revenue-sharing payable to

streamers and other taxes payable. We had other payables of RMB4.3 million, RMB8.6 million and

RMB10.5 million as of December 31, 2017, 2018 and 2019, respectively. The following table sets forth the

components of our trade and other payables as of the dates indicated.

As of December 31,

2017 2018 2019

(RMB in thousands)Payroll payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,709 3,720 2,466Revenue-sharing payable to streamers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 745 1,457 4,040Other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,148 2,491 3,126Payables for acquisition of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 238 319Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481 694 530

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,279 8,600 10,481

Our other payables increased significantly from RMB4.3 million as of December 31, 2017 to RMB8.6

million as of December 31, 2018, primarily due to the increases in (1) the payroll payable due to employees

driven by increases in headcount and salary level of our employees, (2) the revenue-sharing payable to

streamers in line with our increased revenue generated from live streamer management services, and

(3) other taxes payable, primarily driven by the increases in value-added tax payable and individual income

tax payable for our employees. Our other payables increased by 22.1% from RMB8.6 million as of

December 31, 2018 to RMB10.5 million as of December 31, 2019, primarily due to the increases in (1) the

revenue-sharing payable to streamers resulting from a slight delay in the settlement schedule between us

and our streamers, and (2) other taxes payable, primarily driven by the increases in value-added tax and

other surtaxes, partially offset by the decrease in the payroll payable due to employees, which resulted from

(1) our deployment of an increasing number of third-party service providers and temps for certain auxiliary

positions, the cost of which were not recognized as payroll payable due to employees, and (2) the reduced

year-end bonuses paid by some subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

Our primary use of cash is to support the daily operations of our business. During the Track Record

Period, we financed our capital expenditures and working capital requirements principally with cash

generated from our operations. Going forward, we believe that our liquidity requirements will be satisfied

with a combination of cash flows generated from our operating activities, [REDACTED] from the

[REDACTED] and other funds raised from the capital markets from time to time. Any adverse change in

our revenue sharing arrangements with live streaming platforms and streamers, any significant decrease in

the demand of our services, or a significant decrease in the availability of bank loans or other financing may

adversely impact our liquidity. As of December 31, 2017, 2018 and 2019, we had cash and cash equivalents

of RMB15.4 million, RMB29.3 million and RMB55.1 million, respectively.

– 214 –



Cash Flows

The following table sets forth a summary of our cash flows for the periods indicated.


2017 2018 2019

(RMB in thousands)

Net cash generated from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,890 31,409 42,768

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,607) (16,656) (4,593)

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,199) (935) (12,331)

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,084 13,818 25,844

Cash and cash equivalents at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . 8,365 15,449 29,267

Cash and cash equivalents at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,449 29,267 55,111

Net cash generated from operating activities

In 2019, our net cash generated from operating activities was RMB42.8 million, primarily attributable

to our profit before tax of RMB42.0 million minus income tax paid of RMB7.5 million and interest paid of

RMB0.2 million, adjusted for (1) certain non-cash and non-operating items, mainly including the add-back

of depreciation and amortization of RMB10.5 million and the deduction of fair value gains on investments

in film and television series production of RM3.3 million, (2) changes in working capital that positively

affected the cash flow from operating activities, mainly including an increase of RMB1.8 million in other

payables, and (3) changes in working capital that negatively affected the cash flow from operating activities,

mainly including an increase of RMB0.7 million in trade and other receivables.




of depreciation and amortization of RMB8.5 million, (2) changes in working capital that positively affected

the cash flow from operating activities, mainly including an increase of RMB4.2 million in other payables,

and (3) changes in working capital that negatively affected the cash flow from operating activities, mainly

including an increase of RMB3.9 million in trade and other receivables.




of depreciation and amortization of RMB5.4 million and the deduction of gains on disposal of subsidiaries

of RMB1.7 million, and (2) changes in working capital that negatively affected the cash flow from

operating activities, mainly including a decrease of RMB8.3 million in other payables.

Net cash used in investing activities

In 2019, our net cash used in investing activities was RMB4.6 million, which was primarily

attributable to (1) payments for financial assets at fair value through profit or loss of RMB43.0 million, and

(2) purchase of intangible assets of RMB4.3 million, partially offset by proceeds from settlement or disposal

of financial assets at fair value through profit or loss of RMB43.0 million.

– 215 –




attributable to (1) payments for financial assets at fair value through profit or loss of RMB10.0 million,

(2) purchase of intangible assets of RMB5.6 million, (3) acquisition of a subsidiary that does not constitute

a business of RMB3.8 million, and (4) acquisition of business of RMB2.7 million, partially offset by

proceeds from settlement or disposal of financial assets at fair value through profit or loss of RMB7.0

million.


attributable to (1) purchase of intangible assets of RMB20.6 million, (2) payments for financial assets at fair

value through profit or loss of RMB73.0 million, and (3) purchase of property, plant and equipment of

RMB1.7 million, partially offset by (1) proceeds from settlement or disposal of financial assets at fair value

through profit or loss of RMB85.3 million, and (2) proceeds from disposals of subsidiaries, net of cash

disposed of RMB1.4 million.

Net cash used in financing activities

In 2019, our net cash used in financing activities was RMB12.3 million, which was primarily

attributable to (1) dividends paid to non-controlling interests of RMB9.2 million, (2) principal elements of

lease payments of RMB2.1 million, and (3) payment for [REDACTED] expenses of RMB1.6 million,

partially offset by capital injection from non-controlling interests of RMB0.5 million.


attributable to principal elements of lease payments of RMB1.5 million, partially offset by capital injection

from non-controlling interests of RMB0.6 million.


attributable to (1) principal elements of lease payments of RMB0.7 million, and (2) dividends paid to

non-controlling interests of RMB0.4 million.

Working Capital

The following table sets forth our current assets and liabilities as of the dates indicated.

As of December 31,As of

April 3020202017 2018 2019

(Unaudited)(RMB in thousands)

CURRENT ASSETSTrade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,259 25,310 28,443 26,061Amounts due from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,760 3,120 2,660 2,000Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,449 29,267 55,111 57,537

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,468 57,697 86,214 85,598

CURRENT LIABILITIESOther payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,279 8,600 10,481 4,692Current income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,106 6,477 10,595 4,323Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,036 1,945 1,306 1,081

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,421 17,022 22,382 10,096

NET CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,047 40,675 63,832 75,502

– 216 –



The general increase in our net current assets during the Track Record Period was in line with our

business growth, primarily driven by the sustained growth of our profit and total comprehensive income

during the Track Record Period.

We intend to continue to finance our working capital with cash generated from our operations,

[REDACTED] from the [REDACTED] and other funds raised from the capital markets from time to time.

We will closely monitor the level of our working capital, and diligently review future cash flow

requirements and adjust our operation and expansion plans, if necessary, to ensure that we maintain

sufficient working capital to support our business operations.

Taking into consideration of financial resources presently available to us, our Directors are of the view

that our available cash and cash equivalents, anticipated cash flow from operations and [REDACTED]from the [REDACTED] will be sufficient to meet our present and anticipated cash requirements for the

next 12 months from the date of this document. Based on review of financial documents and other due

diligence documents, discussion with and confirmation from our Directors, the Sole Sponsor concurs with

our Directors’ view.

CAPITAL EXPENDITURES AND COMMITMENTS

Capital Expenditures

In 2017, 2018 and 2019, our capital expenditures were RMB24.2 million, RMB16.2 million and

RMB6.2 million, respectively, primarily consisting of purchases of property, plant and equipment, right-of-

use assets and intangible assets.

Operating Lease Commitments

During the Track Record Period, we leased a number of properties as our offices and employee

dormitories under operating leases. Leases for properties were negotiated for terms ranging from one to five

years. The following table sets forth our future minimum lease payments payable under non-cancellable

operating leases as of the dates indicated.

As of December 31,

2017 2018 2019

(RMB in thousands)No later than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 216 134

INDEBTEDNESS

Borrowings

As of April 30, 2020, being the latest practicable date for the purpose of this indebtedness statement,

we had no bank loans or other borrowings, or unutilized banking facilities.

Redeemable ordinary shares

In April 2020, we entered into share subscription agreements and shareholders’ agreements with the

[REDACTED] Investors, pursuant to which we issued 1,439,004 ordinary shares with a redemption right at

a total consideration of HK$10.0 million. See “Our History and Development” for details.

– 217 –



Lease Liabilities

We adopted HKFRS 16 throughout the Track Record Period as stated in Note 2 to the Accountant’s

Report in Appendix I to this document. As such, we recognized right-of-use assets and the corresponding

liabilities in respect of all leases, except for short-term and low-value leases, in our combined balance sheets

as of December 31, 2017, 2018 and 2019. As of December 31, 2017, 2018 and 2019 and April 30, 2020, we

had lease liabilities of RMB2.4 million, RMB4.2 million, RMB2.6 million and RMB2.1 million,

respectively.

Contingent liabilities

As of the Latest Practicable Date, we did not have any material contingent liability, guarantee or any

litigation or claim of material importance, pending or threatened against us or any member of our Group

that is likely to have a material and adverse effect on our business, financial condition and result of

operations.

Save as disclosed above, as of April 30, 2020, being the latest practicable date for the purpose of the

indebtedness statement, we had no bank loans or other borrowings, or any other loan capital issued and

outstanding or agreed to be issued, bank overdrafts, borrowings or similar indebtedness, liabilities under

acceptance (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, hire

purchases, guarantees or other material contingent liabilities.

Save as disclosed above, our Directors confirm that there has been no material change in the

indebtedness, commitments and contingent liabilities of our Group since December 31, 2019 and up to the

date of this document.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

As of the Latest Practicable Date, we had not entered into any off-balance sheet transaction.

[REDACTED] EXPENSES

We expect to incur a total of RMB[REDACTED] (equivalent to approximately HK$[REDACTED])of [REDACTED] expenses in connection with the [REDACTED], representing approximately

[REDACTED]% of the [REDACTED] from the [REDACTED] (assuming an [REDACTED] of

[REDACTED] being the mid-point of the indicative [REDACTED] range between [REDACTED] and

[REDACTED] and assuming that the [REDACTED] is not exercised). During the Track Record Period,

we incurred [REDACTED] expenses of approximately [REDACTED], out of which approximately

[REDACTED] was charged to our combined statements of comprehensive income as administrative

expenses, and approximately [REDACTED] was capitalized. We expect to further incur [REDACTED]and other [REDACTED] expenses of approximately [REDACTED] upon the completion of the

[REDACTED], out of which approximately [REDACTED] is expected to be charged to our combined

statements of comprehensive income and approximately [REDACTED] is expected to be charged against

equity. The [REDACTED] expenses above were the best estimate as of the Latest Practicable Date and for

reference only. The actual amount may differ from this estimate.

In view of the above, prospective [REDACTED] should note that the financial results of our Group for 2020

will be adversely affected by the non-recurring expenses in relation to the [REDACTED]. Our Directors would like to

emphasize that the expenses in relation to the [REDACTED] are a current estimate for reference only and the

– 218 –



amounts to be recognized in the equity and the combined statements of comprehensive income of our Group

are subject to adjustment due to changes in estimates and assumptions.

RELATED PARTY TRASACTIONS

The following table sets forth the details of our related party transactions for the periods indicated.

Year endedDecember 31,

2017 2018 2019

(RMB in thousands)Interest expense on a loan due to Ms. Zhou . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 – –

The following table sets forth the amounts due from related parties as of the dates indicated.

As of December 31,

2017 2018 2019

(RMB in thousands)Mr. Jiang Xu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,760 2,760 2,300Ms. Zhou . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 360 360

The balances due from Mr. Jiang and Ms. Zhou represent their obligation of capital injection to some

of our subsidiaries, respectively, which were unsecured and interest-free. In April 2020, Ms. Zhou disposed

of all of her equity interest in Changchun Jiamiao, the concerned subsidiary, during the reorganization

process and, therefore, we no longer had amounts due from Ms. Zhou. As of the Latest Practicable Date, we

had amounts due from Mr. Jiang Xu of RMB2.0 million.

Our Directors are of the view that our related party transactions during the Track Record Period were

conducted in the ordinary course of business at arm’s length with reference to normal commercial terms and

would not distort our track record results or make our historical results not reflective of our future

performance.

KEY FINANCIAL RATIOS

As of/ for the year ended December 31,

2017 2018 2019

Profitability ratiosGross profit margin(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.5% 69.6% 67.1%Net profit margin(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.1% 34.3% 39.2%Return on equity(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0% 27.4% 28.5%Return on total assets(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6% 19.3% 20.6%Liquidity ratiosCurrent ratio(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 3.4 3.9Capital adequacy ratioGearing ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4% 4.2% 2.1%Debt to equity ratio(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . net cash position net cash position net cash positionInterest coverage ratio(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182.5 289.8 379.8

(1) The calculation of gross profit margin is based on gross profit for the year divided by revenue for the respective year andmultiplied by 100.0%.

– 219 –



(2) The calculation of net profit margin is based on profit and total comprehensive income for the year divided by revenue for therespective year and multiplied by 100.0%.

(3) The calculation of return on equity is based on profit and total comprehensive income attributable to our owners for the yeardivided by average total equity attributable to equity holders of our Company as of the beginning and end of the year andmultiplied by 100.0%.

(4) The calculation of return on total assets is based on profit and total comprehensive income attributable to our owners for theyear divided by average total assets as of the beginning and end of the year and multiplied by 100.0%.

(5) The calculation of current ratio is based on current assets divided by current liabilities as of the year end.

(6) The calculation of gearing ratio is based on total debt divided by total equity as of the year end and multiplied by 100.0%.Total debt refers to our total lease liabilities as of the respective date.

(7) The calculation of debt to equity ratio is based on net debt divided by total equity as of the year end and multiplied by 100.0%.

(8) The calculation of interest coverage ratio is based on profit before income tax, adding net finance costs divided by financecost, net for the respective year.

Gross profit margin and net profit margin

Our gross profit margin was 73.5%, 69.6% and 67.1% in 2017, 2018 and 2019, respectively, and our

net profit margin was 36.1%, 34.3% and 39.2% for the same periods, respectively. See “— Period to Period

Comparison of Results of Operations” for a discussion of the factors affecting our gross profit margin and

net profit margin during the Track Record Period.

Return on equity and return on total assets

Our return on equity increased from 25.0% in 2017 to 27.4% in 2018, and further to 28.5% in 2019,

primarily due to the increase in profit and total comprehensive income attributable to our owners which

outpaced the increase in our total equity from 2017 to 2019.

Our return on total assets increased from 17.6% in 2017 to 19.3% in 2018, and further to 20.6% in

2019, primarily due to the increase in our profit and total comprehensive income attributable to our owners

which outpaced the increase in our total assets from 2017 to 2019.

Current ratio

Our current ratio increased from 2.9 in 2017 to 3.4 in 2018, and further to 3.9 in 2019, primarily due

to the increases in our trade and other receivables and cash and cash equivalents driven by our business

growth and cash flows from operating activities, which led to the increase in our current assets outpacing

the increase in our current liabilities.

Gearing ratio

We strive to maintain a healthy financial condition, and our gearing ratio remained relatively low and

stable during the Track Record Period. Our gearing ratio increased from 3.4% as of December 31, 2017 to

4.2% as of December 31, 2018, primarily due to the increase in our lease liabilities. Our gearing ratio

decreased from 4.2% as of December 31, 2018 to 2.1% as of December 31, 2019, primarily due to the

increase in our total equity and the decrease in our lease liabilities.

– 220 –



Debt to equity ratio

We had net cash position as of December 31, 2017, 2018 and 2019, respectively.

Interest coverage ratio

Our interest coverage ratio increased from 182.5 in 2017 to 289.8 in 2018, and further to 379.8 in

2019, primarily due to the increase in our profit before income tax and the decrease in finance costs, net.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to various financial risks including foreign exchange risk, interest rate risk, credit risk

and liquidity risk. Our Directors reviewed and agreed policies for managing each of these risks as

summarized below. Our overall risk management focuses on the unpredictability of financial market to

minimize potential adverse effects on our financial performance.

For details of our financial risk management, see Note 3 to the Accountant’s Report in Appendix I to

this document.

Foreign Exchange Risk

We operate mainly in the PRC with most of the transactions settled in Renminbi. Our management

considers that our business is not exposed to any significant foreign exchange risk as there are no significant

financial assets or liabilities of our Group denominated in currencies other than the respective functional

currencies of our operating entities.

Cash Flow and Fair Value Interest Rate Risk

Our income and operating cash flows are substantially independent of changes in market interest rates

and we have no significant interest-bearing assets except for cash and cash equivalents, details of which

have been disclosed in Note 18 and Note 17 to the Accountant’s Report in Appendix I to this document,

respectively.

We closely monitor the trend of market interest rates and its impact on our interest rate risk exposure.

We currently have not used any interest rate swap arrangements.

Credit Risk

We are exposed to credit risk in relation to cash and cash equivalents and trade and other receivables,

with a maximum exposure equal to the carrying amounts of these assets.

We expect that there is no significant credit risk associated with our cash deposits at banks since they

are substantially deposited at state-owned banks and other medium- or large-sized listed banks and there has

been no recent default history of these banks. We do not expect that there will be any significant losses from

non-performance by these counterparties.

As for our trade receivables, we have implemented policies to ensure that services are made to

customers with appropriate financial strength and an appropriate percentage of down payment. Regular

review and follow-up actions are carried out on overdue amounts of receivables from live streaming

platforms or streamers, which enable management to assess their recoverability and to minimize our credit

risk exposure. See Note 3 to the Accountant’s Report in Appendix I to this document for details.

– 221 –



As for other receivables, such as amounts due from related parties, we make both periodic collective

and individual assessments on the recoverability of such receivables based on historical settlement records

and the assessment of the financial conditions and capabilities of the debtors. For amounts due from non-

controlling interest which represented their outstanding capital contribution to our subsidiaries, we also

assess the anticipated dividend distributions to them. Our Directors believe that there is no material credit

risk inherent in our outstanding balances of other receivables and, therefore, recognize no loss allowances

for such amount.

Liquidity Risk

In order to manage liquidity risk, we monitor our liquidity reserve using a rolling forecast and

maintain a level of cash and cash equivalents based on expected cash flow. We regularly review our major

funding positions to ensure that we have adequate financial resources to meet our financial obligations. See

Note 3 to the Accountant’s Report in Appendix I to this document for more details.

DIVIDENDS

We do not have any dividend policy in place. According to our Articles of Association and applicable

laws and regulations, our Company in general meeting may from time to time by ordinary resolution declare

dividends in any currency to be paid to the Shareholders but no dividend shall be declared in excess of the

amount recommended by the Board, provided always that in no circumstances may a dividend be paid if

this would result in our Company being unable to pay its debts as they fall due in the ordinary course of

business. We currently do not have a pre-determined or fixed dividend payout ratio. The determination to

pay dividends will be made at the discretion of our Directors and will depend upon, among others, the

financial results, business conditions and strategies, future operations and earnings, capital and investment

requirements, level of indebtedness, prevailing economic environment and other factors that our Directors

deem relevant.

During the Track Record Period, some of our subsidiaries declared and paid cash dividends of

RMB0.4 million and RMB9.2 million to non-controlling interests in 2017 and 2019, respectively.

DISTRIBUTABLE RESERVES

We had no reserve available for distribution to the Shareholders as of December 31, 2019.

DISCLOSURE REQUIRED UNDER CHAPTER 13 OF THE LISTING RULES

Our Directors confirmed that, as of the Latest Practicable Date, there were no circumstances which,

had we been required to comply with Rules 13.13 to 13.19 in Chapter 13 of the Listing Rules, would have

given rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

NO MATERIAL ADVERSE CHANGE

Our Directors confirmed that, up to the date of this document, there has been no material adverse

change in our financial or trading position since December 31, 2019 (being the end of the period reported in

the Accountant’s Report as set out in Appendix I to this document) and there is no event since

December 31, 2019 which would materially affect the information shown in our combined financial

statements included in the Accountant’s Report in Appendix I to this document.

– 222 –



[REDACTED]

– 223 –



[REDACTED]

– 224 –

this document is in draft form, incomplete and … · platforms generally organize marketing...

Documents