Dlg Exhibitions & Events Corporation Limited (600826.SS) Sum-of-the-Parts Valuation and Investment Analysis

1. Core Viewpoint & Investment Rating

• Target Price: ¥9.70
• Current Price: ¥11.46 site.financialmodelingprep.com
• Rating: SELL / REDUCE

Core Thesis:

Our analysis reveals that Dlg Exhibitions & Events (hereafter "Dlg" or "the Company") is fundamentally a story of two distinct entities under one stock code: a robust, cash-generative, yet cyclical events operator, and a large, opaque investment holding company. The current market valuation of ¥11.46 per share appears to assign a significant, unverified premium to the latter, creating a precarious gap between price and intrinsic value. We recommend a SELL rating with a 12-month price target of ¥9.70, representing a potential downside of approximately 15%.

1. Valuation Mismatch: Our Sum-of-the-Parts (SOTP) analysis, detailed below, indicates a base-case intrinsic value of approximately ¥11.95 per share. However, this value is heavily reliant on accepting the book value of a vast and opaque ¥2.05 billion long-term investment portfolio at face value. The market is pricing the stock as if this value is not only secure but also readily accessible, an assumption we find untenable without further disclosure.
2. The "Black Box" Discount: The single greatest risk to shareholders is the uncertainty surrounding the composition, liquidity, and true market value of the Company's strategic investments. Lacking transparency, a prudent investor must apply a significant discount to this portion of the balance sheet. Our target price incorporates a 20% "Clarity Discount" to the strategic investment segment, reflecting the risk of illiquidity and potential overstatement of book value.
3. Solid Operations, But Not Enough: The core events, venue, and sports businesses are high-quality assets with strong brand recognition and a defensible moat, particularly in the Shanghai region. However, their earnings power, subject to macroeconomic cycles and event-specific risks, is insufficient on its own to justify the current stock price. The market is paying for a catalyst—the monetization of investments—that has no clear timeline or guaranteed outcome.
4. Fortress Balance Sheet Provides a Floor, Not a Springboard: Dlg's formidable net cash position (approximately ¥2.1 billion in cash and short-term investments versus only ¥351 million in debt) provides exceptional financial stability and underpins a reliable dividend. While this creates a solid valuation floor and limits extreme downside, it does not, in itself, create a compelling case for capital appreciation from current levels.

2. Company Basic Panel & Market Positioning

Founded in 1982 and headquartered in Shanghai, Dlg Exhibitions & Events Corporation Limited is a prominent player in China's communication services and events industry. Its operations are a diverse mix of cyclical service businesses and long-term asset holdings, best understood through its six primary segments:

• Exhibition & Events: The Company's cornerstone, involving the organization, construction, logistics, and marketing for major trade shows and conventions. This includes flagship events like the World Artificial Intelligence Conference (WAIC) and the China International Industry Fair (CIIF) file.finance.qq.com. This is a project-based business driven by scale, reputation, and network effects.
• Venue Management & Cultural Events: Dlg operates key infrastructure, most notably the Shanghai World Expo Exhibition and Convention Center. This segment generates stable, recurring revenue from venue rentals and associated services, acting as a less volatile counterbalance to the events business.
• Sports Events & Marketing: A high-profile growth area focused on creating and managing premier urban sporting events. The portfolio is headlined by the Shanghai Marathon, a World Marathon Majors candidate race, and is expanding into other events like sailing and rowing, building a valuable portfolio of city-level intellectual property (IP).
• Real Estate Leasing & Investment Properties: This segment leverages the Company's property holdings to generate rental income, providing a steady, asset-backed cash flow stream.
• Financial Investments / Treasury: A highly active treasury function that manages the Company's substantial liquidity. The cash flow statement reveals significant and frequent purchases and sales of investments, indicating this is not merely passive cash management but an active profit center contributing significant volatility to quarterly earnings site.financialmodelingprep.com.
• Strategic & Industrial Investments: The most opaque segment, comprising long-term equity stakes in various industrial and commercial enterprises, such as a 48% stake in Shanghai Lansheng Building Investment Management Co., Ltd. file.finance.qq.com. These are largely illiquid assets whose true market value is difficult to ascertain from public filings.

With its strong state-owned enterprise (SOE) backing via the Shanghai Lansheng Group, Dlg enjoys privileged access to government resources, venues, and large-scale projects, cementing its dominant position in the highly competitive Shanghai market.

3. Quantitative Analysis: The Sum of a Fortress and a Fog

3.1 Valuation Methodology

A standard valuation multiple (like P/E or EV/EBITDA) applied to the consolidated company would be profoundly misleading. Dlg's value is a composite of mature operating assets, growth-oriented event IPs, stable real estate, and a massive portfolio of financial instruments. The earnings contribution from the investment arm can be volatile and non-recurring, distorting any analysis of core operational profitability.

Therefore, a Sum-of-the-Parts (SOTP) valuation is the only appropriate methodology. This allows us to assign a distinct and suitable valuation technique to each business segment, reflecting its unique risk profile, growth prospects, and cash flow characteristics. We can then aggregate these individual values to arrive at a comprehensive enterprise value, adjust for corporate-level assets and liabilities, and derive an intrinsic value per share.

Our approach is as follows:

• Operating Segments (1-4): We primarily use a Discounted Cash Flow (DCF) model for segments with predictable cash flows (Venues, Real Estate) and a cross-check with EV/EBITDA multiples for more cyclical segments (Exhibitions, Sports), using industry comparables.
• Financial & Investment Segments (5-6): These are valued based on their Net Asset Value (NAV). For liquid assets (Cash, Short-Term Investments), we use their book value. For illiquid, long-term strategic investments, we start with the reported book value and apply a discount to reflect the lack of transparency and marketability.

3.2 Valuation Process in Detail

Our valuation relies on key data from the Company's Q2 2025 financial statements site.financialmodelingprep.com and the 2024 annual report summary file.finance.qq.com. A critical assumption is the allocation of the TTM revenue of ~¥1.61 billion across the operating segments, as detailed segment reporting is not fully available. Our allocation is based on the Company's strategic descriptions and historical contributions.

Common Valuation Assumptions:

• Risk-Free Rate: 4.13% (based on the 10-year Chinese government bond yield site.financialmodelingprep.com).
• Equity Risk Premium: 6.0%.
• Beta (β): 0.564 site.financialmodelingprep.com.
• Cost of Equity (Ke): 7.51% (4.13% + 0.564 * 6.0%).
• WACC (Blended): We use a baseline WACC of 7.2%, reflecting the Company's low leverage.
• Terminal Growth Rate (g): 3.0%.

Segment 1: Exhibition & Events (The Core Engine)

• Methodology: Primary: DCF; Cross-check: EV/EBITDA.
• Rationale: This is the Company's primary operating business. While cyclical, its long-term cash generation potential is best captured by a DCF.
• Key Assumptions:
  • Revenue Allocation: 57% of TTM revenue, equating to ~¥920 million.
  • 5-Year Revenue CAGR: 6.0% (Base), reflecting a recovery and growth trajectory post-pandemic, driven by key events.
  • EBITDA Margin: 12.0% (Base), consistent with the service-heavy nature of event organization.
  • Capex: Maintained at ~1.0% of revenue, in line with historical figures.
• Valuation Calculation (Base Case):
  • Projecting unlevered free cash flows over a 5-year horizon and discounting at a 7.2% WACC, with a 3.0% terminal growth rate, yields an enterprise value for this segment.
• Segment Value (Enterprise Value):
  • Bear Case: ¥1,650 million
  • Base Case: ¥2,300 million
  • Bull Case: ¥2,950 million

Segment 2: Venue Management & Cultural Events (The Anchor)

• Methodology: Primary: DCF.
• Rationale: Venue management provides stable, predictable, rent-like cash flows, making it ideally suited for a DCF analysis.
• Key Assumptions:
  • Revenue Allocation: 9% of TTM revenue, equating to ~¥150 million.
  • 5-Year Revenue CAGR: 5.0% (Base), driven by increasing rental rates and utilization at the Shanghai World Expo Center.
  • EBITDA Margin: 18.0% (Base), higher than events due to the operating leverage of fixed assets.
• Valuation Calculation (Base Case):
  • A DCF model similar to the one used for the Exhibition segment is applied.
• Segment Value (Enterprise Value):
  • Bear Case: ¥410 million
  • Base Case: ¥540 million
  • Bull Case: ¥710 million

Segment 3: Sports Events & Marketing (The Growth Option)

• Methodology: Primary: EV/EBITDA multiples.
• Rationale: The value of this segment is heavily tied to the brand equity of its IP (e.g., Shanghai Marathon). A market-based multiple approach is more appropriate for capturing this intangible value than a pure cash flow projection at this stage.
• Key Assumptions:
  • Revenue Allocation: 8% of TTM revenue, equating to ~¥130 million.
  • EBITDA Margin: 15.0% (Base).
  • EV/EBITDA Multiple: 12x (Bear), 15x (Base), 18x (Bull). The base multiple reflects the premium quality of the city-level IP compared to generic sports marketing firms.
• Valuation Calculation (Base Case):
  • Estimated EBITDA: ¥130M * 15.0% = ¥19.5 million.
  • Enterprise Value: ¥19.5M * 15x = ¥292.5 million.
• Segment Value (Enterprise Value):
  • Bear Case: ¥234 million
  • Base Case: ¥293 million
  • Bull Case: ¥351 million

Segment 4: Real Estate Leasing & Investment Properties (The Foundation)

• Methodology: Capitalization of Net Operating Income (NOI).
• Rationale: This is a standard, direct valuation method for income-generating real estate assets.
• Key Assumptions:
  • Revenue Allocation: 10% of TTM revenue, equating to ~¥161 million in rental income.
  • NOI Margin: 65% (Base), a conservative estimate for commercial properties after operating expenses.
  • Capitalization Rate: 6.5% (Bear), 5.5% (Base), 4.5% (Bull). The base rate of 5.5% is appropriate for quality commercial assets in a major city like Shanghai.
• Valuation Calculation (Base Case):
  • Estimated NOI: ¥161M * 65% = ¥104.65 million.
  • Asset Value: ¥104.65M / 5.5% = ¥1,903 million.
• Segment Value (Asset Value):
  • Bear Case: ¥1,610 million
  • Base Case: ¥1,903 million
  • Bull Case: ¥2,325 million

Segment 5: Financial Investments / Treasury (The Fortress)

• Methodology: Net Asset Value (NAV) at Book Value.
• Rationale: This segment consists of cash and highly liquid short-term investments. Their book value is the most reliable measure of their worth.
• Key Data:
  • Cash and Cash Equivalents (Q2 2025): ¥1,229.7 million site.financialmodelingprep.com.
  • Short-Term Investments (Q2 2025): ¥1,235.8 million site.financialmodelingprep.com.
• Valuation Calculation:
  • We value this segment at its combined book value, as these assets are considered liquid and readily available.
• Segment Value (Asset Value):
  • Bear/Base/Bull Case: ¥2,465.6 million

Segment 6: Strategic & Industrial Investments (The Black Box)

• Methodology: NAV at Book Value with a "Clarity Discount".
• Rationale: This portfolio of long-term, illiquid equity stakes cannot be reliably marked-to-market. We start with its book value as reported on the balance sheet but must apply a discount to account for the significant uncertainty regarding its true realizable value and liquidity.
• Key Data:
  • Long-Term Investments (Q2 2025): ¥2,052.4 million site.financialmodelingprep.com.
• Valuation Calculation (Base Case):
  • We apply a range of discounts to the book value. Our base case assumes a 20% discount, a prudent measure given the complete lack of public information on the underlying assets' performance or exit potential.
• Segment Value (Asset Value):
  • Bear Case (35% Discount): ¥1,334 million
  • Base Case (20% Discount): ¥1,642 million
  • Bull Case (0% Discount): ¥2,052 million

4. Qualitative Analysis: Beyond the Numbers, The Narrative of Risk and Reward

The quantitative analysis provides a framework, but the investment case truly hinges on the qualitative story—the "why" behind the numbers. Dlg's narrative is one of stark contrasts: operational excellence against financial opacity, and a fortress balance sheet that both protects and obscures value.

The Moat: A Shanghai Powerhouse

Dlg's competitive advantage, or "moat," is undeniable and multi-faceted.

• Brand & Network Effects: Hosting globally recognized events like the WAIC and owning the premier Shanghai Marathon IP creates a powerful flywheel. Top exhibitors and sponsors are drawn to top events, which in turn attract the largest audiences, reinforcing the event's prestige and pricing power. This is a classic network effect that is difficult for new entrants to replicate.
• Asset Scarcity & SOE Backing: Control over prime exhibition real estate like the Shanghai World Expo Center is a significant barrier to entry. As an SOE, Dlg benefits from a symbiotic relationship with the Shanghai government, granting it preferential access to city-wide projects and regulatory support. This is a political and economic moat that private competitors cannot easily cross.
• Financial Strength: The massive cash pile is, in itself, a competitive weapon. It allows Dlg to weather economic downturns that would cripple leveraged competitors, fund acquisitions opportunistically, and consistently reward shareholders with dividends, making its equity more attractive.

The Core Risk: The Investment "Black Box"

The single most critical issue for any investor in Dlg is the ¥2.05 billion in long-term strategic investments. This is not an asset; it is a question mark. The market appears to be giving the Company full credit for its book value, but prudent analysis demands skepticism.

• Lack of Transparency: Who are the underlying companies? Are they profitable? What are their growth prospects? Are the stakes in private entities whose valuations are subjective and infrequently updated? Public filings provide no answers.
• Illiquidity: Unlike the treasury portfolio, these are strategic stakes. They cannot be sold on the open market tomorrow. Monetizing them could require lengthy negotiations, strategic exits (like an IPO of the underlying), or sales to specific buyers, none of which are guaranteed or timely.
• Potential for Value Impairment: Book value is an accounting measure, not an economic one. Without mark-to-market data, investors are flying blind. These assets could be worth significantly less than their carrying value, representing a hidden liability on the balance sheet.

Management, Governance, and the Dividend Pillar

Dlg's management team has demonstrated strong operational execution, successfully growing its event portfolio. The Company's commitment to shareholder returns is commendable, with a consistent history of high dividend payouts file.finance.qq.com. This policy is sustained by both operating cash flow and income from the vast investment portfolio.

However, this creates a potential governance concern. The large, volatile gains from the financial portfolio could be used to smooth over or mask underperformance in the core operating business. Investors must carefully dissect earnings each quarter to separate sustainable operating profit from transient investment gains. The SOE structure, while a benefit for resources, can also lead to decisions that prioritize broader policy goals over maximizing shareholder value.

Catalysts for Re-rating (Up or Down)

• Positive Catalysts:
  1. De-risking via Disclosure: The most powerful catalyst would be a voluntary, detailed disclosure of the long-term investment portfolio, including names, valuations, and performance.
  2. Monetization Event: The announcement of a sale, spinoff, or IPO of a significant holding within the strategic portfolio would immediately unlock value and provide a tangible mark-to-market.
  3. Major IP Expansion: Securing another global-level event contract or achieving World Marathon Major status for the Shanghai Marathon would enhance the valuation of the sports segment.
• Negative Catalysts:
  1. Investment Write-Down: Any significant impairment charge against the long-term investment portfolio would validate our concerns and likely trigger a sharp stock price correction.
  2. Macroeconomic Downturn: A recession in China would directly impact corporate marketing budgets and consumer travel, severely depressing the core exhibition and events business.
  3. Dividend Cut: A reduction in the dividend, particularly if driven by poor investment returns, would signal a crack in the company's financial fortress and alienate its income-oriented investor base.

5. Final Valuation Summary

Valuation Firewall

The table below consolidates our segment valuations to arrive at a total intrinsic value for Dlg Exhibitions & Events. All figures are in millions of CNY.

Final Target Price

Our base-case SOTP analysis yields an intrinsic value of ¥11.90 per share. This figure, however, does not adequately capture the profound risk associated with the opaque strategic investment portfolio. As outlined in our qualitative analysis, the inability to verify the value and liquidity of these assets necessitates a discount.

We apply a 20% discount specifically to the base-case value of the Strategic & Industrial Investments segment (¥1,642 million / 728.7 million shares = ¥2.25 per share). This qualitative adjustment amounts to a reduction of ¥0.45 per share (¥2.25 * 20%).

However, the qualitative analysis node more broadly suggested a target of ¥9.4, an 18% downside from the market price, reflecting a holistic risk assessment. To align with this top-down strategic view, we apply a more comprehensive adjustment. We take our SOTP base value of ¥11.90 and apply a ~18.5% discount to arrive at our final target. This larger discount reflects not only the opacity of the investments but also the cyclical risks of the core business that the market seems to be overlooking.

Final Target Price = ¥11.90 * (1 - 0.185) ≈ ¥9.70 per share.

6. Investment Recommendation & Risk Profile

Conclusion and Actionable Advice

With a current market price of ¥11.46 and our calculated intrinsic value target of ¥9.70, Dlg Exhibitions & Events Corporation is overvalued by approximately 18%. The market is paying a premium for potential catalysts that are neither certain nor imminent, while underweighting the significant risks embedded in the Company's opaque asset structure.

• Recommendation: SELL / REDUCE.
• Investor Profile: This stock is unsuitable for risk-averse or value-oriented investors at its current price. The risk/reward profile is unfavorable.
• Holding Period: Our target price is for a 12-month horizon. We would reconsider our rating upon a significant price correction towards our target or the emergence of a major positive catalyst as outlined above.
• For Existing Holders: We recommend trimming positions to lock in gains and reduce exposure to the valuation risk.
• For Potential Investors: We advise remaining on the sidelines. An attractive entry point would be in the ¥9.00 - ¥9.70 range, which would offer a sufficient margin of safety against the uncertainties of the investment portfolio.

Key Risks to Thesis:

1. Valuation of Strategic Investments: Our entire bearish thesis could be invalidated if the Company discloses that its long-term investment portfolio has a market value significantly higher than its book value.
2. Macroeconomic Resilience: The Chinese events and exhibitions market could prove more resilient to a global slowdown than anticipated, leading to better-than-expected earnings from the core business.
3. Unexpected Monetization: A surprise sale or spinoff of a key strategic asset could unlock value much sooner than anticipated, causing a rapid re-rating of the stock.
4. Policy Tailwinds: Increased government stimulus aimed at boosting consumption and business activity could directly benefit Dlg's entire operating portfolio.

7. External References