The spring collection auctions in Hong Kong and Mainland China have ended. Although the overall economic environment is sluggish, the auction industry as a whole has rebounded strongly. Council International, which, it was recently announced, will be acquired by listed company Hiteker, saw an eye-watering RMB 2,558 million in sales in the spring auction, with the profit estimated at about RMB 500 million. After the acquisition is completed, it will bring huge changes to Hiteker’s business.

Auction market heating back up

The spring collection auctions in Hong Kong and Mainland China have ended and there has been considerable growth in the earnings of many auction houses compared with the spring auctions last year. The highest trades were mostly created by classic collectibles that are rare in the market but have a well-documented historical record, especially ancient paintings and calligraphy, porcelain and jewellery. Compared with 2015, there was a significant increase in transactions in the 2016 spring auctions and the market has rebounded much more strongly than in the previous year.

As of the present time, the spring auction results of several major auction houses in Hong Kong have been announced. Among them, Christie’s earned HKD 2.8 billion, a drop of 13% compared with the HKD 3.22 billion spring auction earnings of last year. Sotheby’s turnover increased significantly in the spring auction this year, up to HKD 3.1 billion, an increase of 17% compared with last year. A total of 2,637 auction items were traded and 16 auctions were record breaking. The takings for Poly Auction Hong Kong reached HKD 1,267 million, 15% higher than the HKD 1.1 billion earned in their spring auction last year. Guardian Hong Kong reached deals worth HKD 440 million in the spring auction this year, an increase of 74% compared with HKD 253 million last year.

Wei Wei, the president of Christie’s Asia, told media outlets that the annual average sales in Asia had reached USD 2 billion and that Hong Kong auctions accounted for 40%.

The second round of spring auctions held in Mainland China have ended one after another in May and saw notable increases in turnover.

Beijing Poly’s spring auction kicked off first in June. On 4 June, the God of the Cloud and Great Lord of Fate by Fu Baoshi matched expectations and fetched RMB 200 million. The total cost amounted to RMB 230 million including the commission, breaking the auction record for contemporary Chinese paintings and calligraphy in 2016.

In Beijing, total sales for China Guardian in 2016 spring auction reached RMB 2.19 billion, an increase of 17% compared with the last year’s spring auction which took in RMB 1.87 billion; it has also increased by 19.5% compared with the 2015 autumn auction results of RMB 1.83 billion. Spring auction sales for Beijing Dongzheng amounted to RMB 550 million, an increase of 83.9% on the RMB 299 million achieved in the 2015 spring auction and an increase of 93% compared with the RMB 285 million taken in the 2015 autumn auction. Beijing Chengxuan this spring achieved RMB 207 million, 13.1% higher than its 2015 spring auction results of RMB 183 million and 4% higher than the RMB 199 million taken in the 2015 autumn auction. Total sales for Beijing Huachen were RMB 72.91 million, 71.4% higher compared with the RMB 42.54 million earned in the 2015 spring auction but down 2.1% on the RMB 74.49 million earnings in the 2015 autumn auction.

Among the auction houses in Mainland China, Council International is the most extraordinary. It was announced on 11 April 2016 that the company would be acquired by the listed company Hiteker.

From 6 to 8 June, the Council International 2016 Spring Auction was held in Beijing. The season split into 31 sessions and more than 3700 collectibles were displayed. By of the end of the spring auction on the night of 8 June, sales for the Council had reached RMB 2.56 billion. Among the collectibles, Album of One Hundred Peonies by Jiang Tingxi started the bidding at RMB 15 million. With fierce competition between collectors, the price kept rising culminating in a hammer price of RMB 151 million. The total sale amounted to RMB 173.65 million plus commission, creating an auction record for the artist’s personal works. In addition, Shaoshan: Sacred Place of the Revolution by Li Keran sold for RMB 83.95 million and the final price was almost RMB 100 million.

Compared with the RMB 1.08 billion taken in the 2015 spring auction, Council Spring Auction sales this year increased by nearly 150%. It is worth noting that this is the first auction held by Council after the acquisition of Council was announced by Hiteker.

Council International is already an industry leader. During the downturn in the art market last year, Council’s total sales reached RMB 2 billion, ranking third in the artwork auction industry after Poly and Guardian. In terms of the performance in the spring auction this year alone, Council has surpassed Guardian and now ranks second.

Hiteker in turnaround?

According to the Profit Forecast Compensation Agreement signed by Hiteker with Council International shareholder Council Culture and Dong Guoqiang, Council International’s net profits shall be no lower than RMB 150 million, RMB 200 million and RMB 260 million in 2016, 2017 and 2018 respectively after the deduction of non-recurring gains and losses.

With the strong results in the spring auction, we can confidently imagine that the annual performance of Council International will exceed expectations. “We believe that the autumn auction will maintain the same level as the spring auction. The autumn auction is in December, so part of takings will be recorded in 2017. However, based on estimates from the 2016 spring auction only, the performance of Council this year will far exceed the above commitments,” insiders said. Reporters from China Business News learned from a number of auction insiders that fees on both sides of a trade in the auction industry accounted for nearly 20% of a sale price. Based on estimates, the profit Council earned from this spring auction was nearly RMB 500 million, which was far more than the expected performance of Council International.

According to public data, Hiteker had a net profit of RMB 420 million in 2015. After the acquisition is completed, Council International will be included in the company’s results, which will greatly increase Hiteker’s profits.

Based on the previously announced acquisition plan, Hiteker planned to raise supporting funds from the non-public issuance of shares of Yuan Yafei and Liu Yiqian. The supporting funds raised will be no more than RMB 1.5 billion, of which RMB 480 million will be used to establish additional branch offices.

After acquiring Council International, the profits may reach or even exceed that of the original business sector of Hiteker. Does this mean Hiteker will focus on auctions in the future? Han Hongtu, Secretary to President of Hiteker, answered this question as asked by China Business News, explaining that because no other auction house has ever been listed in the A-share market, Hiteker will become the only listed company in the A-share market to own an auction business. But he also noted that Hiteker would continue to work hard to develop its existing main business. Therefore, the existing retail business will be the main focus and the auction industry and Broad Finance will act as two further wings, and based on the premise of developing its existing business, Hiteker will achieve a full transformation, expanding in both the auction industry and other directions so as to realise synergy in development between different business sectors.

According to Hiteker’s acquisition plan, Council International will establish branches in Shanghai and Hangzhou in 2017 and 2018 respectively, using its influence in Shanghai and Jiangsu-Zhejiang region. In this way, it plans to strengthen its auction collection and carry out spring auction sessions and autumn auction sessions in the above regions to further increase its market share in the domestic market. It is estimated that the Shanghai area will grow the business by 10% in 2017 and beyond, while in 2018, Hangzhou will bring in over 10% of business growth. This will be the source of growth for Council International’s future business. Another source of growth will be to expand auction channels, which will use e-commerce platforms to launch online auctions, micro-auctions and other business. With the rise of new generations and the advent of the Internet era as well as the opportunities for artwork e-commerce of the auction industry, the company will develop its own Internet auction using e-commerce platforms. It will also combine the e-commerce resources with the company’s auction resources organically and establish online auction clusters and online artist clusters as well as various micro-auctions to strengthen the company’s auction business growth. It will augment the diversification of business growth through online auctions and micro-auctions over the next five years.