Promote the integration of new media business, pay close attention to management, and the performance has declined slightly. In the first half of 2016, the company achieved an operating income of 3.495 billion yuan (an increase of 37.05% over the same period last year) and a net profit of 135 million yuan (8.5% less than the same period last year). The larger increase in operating revenue was mainly due to business growth and the increase in the scope of consolidation, of which the operating income of new media increased by 2458% compared with the same period last year. Revenue from advertising agency operation and network transmission services in the core business also recorded an increase of 61% and 3% respectively, which shows that the upgrading and transformation of the "media + Internet" strategy actively promoted by the company in recent years has been smooth. The synergy effect of the integration and development of traditional media business and new media business is gradually reflected. In addition, films such as "the Rogue 2" and "the Prisoner", which were released in the first half of the Lion Gate project, grossed 496 million US dollars at the global box office, while the company has not yet completed the revenue recognition work by the end of this period, so the company's film and television production business revenue will increase greatly in the second half of the year.

Actively layout the mobile new media ecosystem, re-stimulate the vitality of the traditional advertising business, and the synergy benefit is obvious. Yike Siqi, which was acquired in 2015, continues to dig into effect advertising, with Tencent and Baidu, Inc. as the main media (the company is one of Tencent's five platinum service providers for social advertising), e-commerce as its main customers, and differentiated marketing services to expand the market scale. The original Yunhong advertising company is to vigorously expand mango TV, iQIYI, Inc. and Tudou network and other new media advertising business, revenue has increased greatly. In the first half of the year, Yunhong Advertising has achieved business revenue of 1.863 billion yuan, an increase of 60.83% over the same period last year. With the continuous penetration of the mobile end, mobile advertising is growing rapidly, and its profit contribution to the company has a strong growth momentum and broad prospects for development.

In-depth layout of the content industry, from IP operation to film and TV drama distribution + pan-entertainment coverage of the whole industry chain. In the field of content, the company implements the integration of resources on the original basis, and plans to build a media content platform that integrates films, TV dramas and variety shows, and now the integration work has been initially completed. Film production, TV drama distribution and variety production talent introduction are moving forward steadily. In the field of games, Shanghai Jiuyou quickly permeates the mobile game market, while developing new products, pay attention to the introduction of new technologies and new elements (the newly developed "Jin Dance Group 3" adds VR elements). The multi-point layout of IP, movies and TV series and games is expected to further enhance the growth space of the company.

Profit forecast. The company insists on both epitaxial M & An and endogenous development, continues to devote itself to the integration of original business and new media business, and strives to become a leading innovative comprehensive media group in the country. Future highlights: 1) make every effort to build a mobile advertising ecosystem to enhance the competitiveness of the original business; 2) steadily promote the "media + Internet" strategy with media and pan-entertainment as the main line of development, achieve deep integration with new Internet media; 3) be optimistic about the positive effects of Dachen Ventures for the company's transformation and improvement of the industrial chain. Based on the performance bets made by Zhangkuo and Jiuzhirun acquired last year (196 million, 244 million and 296 million respectively in 2016 and 2018), we expect the company's EPS from 2016 to 2018 to be 0.37,0.42,0.49 yuan, respectively. With reference to the same industry CITIC Guoan's 2016 PE is expected to be 63.86 times, we give the company 55 times, corresponding to the 2016 target price of 20.35 yuan. Give a buy rating.

Risk hint. The transformation of the company is not as expected; economic downside risks.