Performance Summary In 2016, the company achieved operating income, operating profit, and net profit attributable to shareholders of listed companies of 389 million yuan, 308.027 million yuan, and 33.2848 million yuan respectively, up 5.45%, 1.41% and 7.39% year-on-year respectively. Achieving a fully diluted EPS of 0.13 yuan/share is basically in line with our expectations. The net cash flow from operating activities was RMB 41,2078 million, higher than the net profit for the same period. On a quarterly basis, the company's Q1/Q2/Q3/Q4 revenue growth rate was -3.5%/7.9%/9.36%/7.32%, respectively, and net profit growth rate was 31.22%/1.40%/-6,54%/9.74%, respectively. The distribution plan for 2016 is a cash dividend of $0.25 (tax included) for every 10 shares. The company also expects profit growth of 5%-25% in the first quarter of 2017. Business analysis revenue increased steadily, and profit increased slightly. In the first half of the year, the company's revenue continued to grow steadily (+5.45%), and gross margin fell slightly to 26.31% (-2.04pct.). The fee rate for the period decreased by 0.07pct. Among them, the sales expense ratio increased by 1.79pct. Mainly due to the increase in online marketing service fees, the management fee rate and financial cost rate have both declined (-1.00pct./-0.86pct.) Among them, the reduction in financial expenses is mainly due to an increase in interest income and an increase in exchange gains and losses. The net profit margin of return is 8.55% (+0.15pct.) , profitability increased slightly. The increase in sales volume led to an increase in the company's revenue, while the increase in costs and lower sales prices dragged down the increase in gross profit. In 2016, the company achieved sales volume of 30,768 pianos, a year-on-year increase of 7.39%, while operating costs increased 8.44% year-on-year. Among them, the operating costs of the core product, vertical pianos, increased significantly by 13.61%. Meanwhile, the average price of the second largest main product, the grand piano, in 2016 was 26,549.78 yuan, down 2.33% from the previous year. The combination of the above two reasons led to a slight decline in the company's gross margin level in 2016. Product expansion and upgrade, integrated service system formation. In 2016, the company launched the Viennese line of high-end pianos. Currently, the Viennese piano series has a total of 9 uprights and 1 grand piano. In addition to launching a high-end piano series, the company also launched string products such as acoustic guitars, classical guitars, and violins in 2016, extending the product line to non-piano instruments, and launched the Disney series of pianos for the first time. At the same time, the company also launched a first-generation smart piano product, equipped with core technologies such as an autonomous intelligent screen display system, an audio source system, and an Internet MOOC education platform system, which filled the technological gap in the domestic smart piano field, and also basically formed the company's “Internet+smart piano+art training” integrated service system. In the future, the company plans to develop smart piano products for middle-aged and elderly people to expand the product audience. The company's fund-raising for a piano movement manufacturing project was completed in October 2016, bringing the production capacity of traditional acoustic pianos to a new level. The current progress of smart piano research and development for the fixed increase project has reached 20.18%. It is expected that the project will be fully produced in 2018. In terms of R&D, the company achieved remarkable results in 2016. It completed a total of 5 independent R&D projects and obtained 6 utility model patent authorizations. In November 2016, Hailun Chen, the chairman of the company, and his wife received the “Shang Peter Award”. The core consideration of the award is “innovation,” and honors outstanding people with pioneering and innovative spirit and leading roles in the fields of economic research and economic politics. This is the first time the St. Peter Prize has been awarded to entrepreneurs in the field of music and cultural products, and the first time that a Chinese entrepreneur has won this award. Actively expand sales channels and operate online and offline simultaneously. 1) Offline layout: Currently, the company has nearly 300 piano stores in Europe and North America, more than 40 piano stores in Japan that sell Helen pianos as agents, and more than 800 piano stores around the world that distribute the company's products. In the local market, in 2016, the company's brand promotion went deep into the second- and third-tier urban areas, cooperating with promotional activities such as concerts, master classes, and piano contests, which led to a steady increase in brand influence and sales volume. 2) E-commerce platforms: The company has “Helen Musical Instrument Flagship Stores” on e-commerce platforms such as Tmall and Jingdong. Through online activities such as “6.18” and “Double Eleven”, the results of marketing campaigns can be achieved. Overall, the company's product sales continued to grow in 2016, driven by new product launches, RMB depreciation favoring exports, and Double Eleven sales. The art education business is developing smoothly, and the transformation into a comprehensive cultural enterprise can be expected. In 2016, the company deepened the expansion of the art education industry chain and established four major curriculum systems: art enlightenment, music education, art education and dance education. At the same time, Helen Art Education Investment Company established five major centers to support the daily operation of art education and training in various regions. From April 2016 to April 2017, the company held shares in 7 domestic art education enterprises through successive capital increases, and the art education extension development model progressed steadily. On the other hand, in 2016, the “6+1 Smart Piano Classroom”, where the company uniformly provides smart pianos, training materials, and teacher training, entered the national promotion stage. This product enables multiple people to sign in online for teaching at the same time. Currently, the courses are mainly focused on young children and beginners, and the company plans to add study courses for middle-aged and elderly people in the future. In the future, in the field of art education, the company will also introduce the Vienna EMP Music Enlightenment Program to promote scientific music education and expand the domestic music enlightenment market. We are optimistic about the future development of the Chinese art education market under the rapid rise of cultural consumption in second- and third-tier cities and the comprehensive two-child policy. As one of the few enterprises in China with strong art education genes, the company actively promotes art education business through endogenous and extrinsic methods. The future transformation of a comprehensive cultural enterprise is worth looking forward to. Risk factors are the impact of imported used pianos, market competition has intensified; raw material prices and labor costs have risen; and the promotion of art education has fallen short of expectations. Profit forecasts and investment suggestions There is huge room for development in the domestic art education market. We are optimistic about the deepening implementation of the company's “piano manufacturing+art education” model and the potential for integrated development of flexible private institutions in the art education market. We forecast the company's 2017-2019 EPS to be 0.16/0.20/0.27 yuan/share (three-year CAGR 26.4%). The corresponding PE score is 87/67/51 times, maintaining the company's “increased holdings” rating.