This Billionaire Is Building The Next Disney

Joseph Hogue's picture

Friday, August 12, 2016 - 12:30pm

by Joseph Hogue

When Walt Disney moved to Los Angeles in 1923 and created Disney Brothers Studio, he had little to his name, having already failed with a previous studio company. 

His legacy is now worth a market cap of $157 billion, spanning film, TV, sports and theme parks. In the last five years alone, shares of The Walt Disney Company (NYSE: DIS) have jumped 235% as the entertainment powerhouse uses its reach to dominate multiple industries.

The rise of China and 1.35 billion consumers could bring the next Disney story, and one of the world's richest men already has plans for creating his empire. 

He's got the ear of the Chinese government and a $30 billion-plus head start on building the next global entertainment dynamo.

From Property Development To Entertainment Empire
The Dalian Wanda Group is already the world's largest property developer, and now has its sight set on developing a global entertainment business to rival any other. The company is developing six theme parks in China, as well as hotel and tourism properties internationally.  

The company also owns Infront Sports & Media, a media and marketing company for international sporting events and federations. The company represents 170 rights holders, including all seven Olympic winter sport federations and the FIS World Cup.

Outside the entertainment space, Wanda Group owns companies in real estate development, insurance and investments.

At the center of this growing empire is the company's Chairman, Wang Jianlin, China's richest man with a net worth of over $30 billion.

While Disney has opened its first theme park in China, Wang has the competitive advantage as the country's richest man and a champion of the culture. He's already been vocal about Disney's influence on local culture, and claims that his domestic parks can protect the nation's heritage.

Investing In The Next Global Entertainment King
Dalian Wanda Commercial Properties trades on the Hong Kong stock exchange (HK: 3699) but has no American Depository Receipts (ADRs). That doesn't mean American investors are locked out of what could be one of the largest entertainment companies of the future, however.

AMC Entertainment (NYSE: AMC) is the second-largest U.S. cinema company with about 12% of the domestic market and is majority-owned by Dalian Wanda Group, which holds 78% of outstanding shares. The company has made an offer for Carmike Cinema, the fourth-largest U.S. cinema company with 2,954 screens, to bolster its rural footprint and add scale. The combined company would be the largest in the United States, with nearly 19% of the market.

Even without the Carmike deal Jianlin's Wanda Group is already the world's largest cinema chain operator, and the group expects to make at least five major acquisitions this year to add to its entertainment empire. Earlier this year the company acquired Legendary Entertainment, producer of box office hits "The Dark Knight Trilogy" and "Jurassic World."

AMC announced a European expansion last month with the acquisition of Odeon & UCI Cinemas, the largest theater operator in Europe. This is a well-timed purchase, considering that weakness in the British pound has made acquisitions more than 10% cheaper. Complementing its distribution assets, AMC also owns an 18% stake in National CineMedia, a joint-venture advertising business between the three largest cinema operators for on-screen ads. 

Besides multiplexes around the world, Dalian is also in talks with Viacom to buy a 49% stake in film studio Paramount Pictures. The Paramount and Carmike acquisitions would solidify Wanda Group's position in film-making and distribution.

Box office sales in North America are volatile, but have rebounded over the past few years with blockbuster franchises like Star Wars and movies based on Marvel super heroes. Attendance in 2015 was 1.32 billion, just 3% below the 2012 record, while ticket prices rose 3.2% over the previous year. Total box office sales increased 7.6% in 2015, and could continue to do well on strength in consumer spending and new releases.

The Wanda Group ownership of AMC represents significant support for the shares as a strategic rather than financial holding. Along with other institutional owners, more than 97% of the shares are closely held. Shares pay a 2.7% dividend and could be worth $32 per share over the next year on expected earnings growth of 9% to $1.15 per share and a marginal improvement in the P/E multiple to 28 times earnings. 

Recent and planned acquisitions could give AMC significant power in the film and distribution business with Dalian Group's longer-term goal driving growth.

Risks To Consider: Shares of AMC trade at a premium on market control and institutional ownership but could come under pressure if an economic slowdown results in lower box office sales.

Action To Take: Take a position in the next Disney through shares of AMC Entertainment as Wang Jianlin and the Wanda Group build a global entertainment leader.

Editor's Note: Wang Jainlin is an insider in the entertainment industry, which is what makes his favorites such good buys. He's not the only one with insider knowledge, though. What better way to get on the "millionaire track" than investing in companies owned by millionaires who also happen to write the law? In this special presentation, you'll get the names and tickers of several of congress' favorite stocks. Details here.

Joseph Hogue does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.