1. Overview of events Recently, the company released its 2016 annual report: annual revenue of 13.789 billion yuan, up 15.98% year on year; net profit attributable to shareholders of listed companies was 592 million yuan, up 82.42% year on year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 480 million yuan, up 105.10% year on year; basic earnings per share of 0.49 yuan. 2. Analysis and judgment that traditional business growth is in line with expectations, market share is rising steadily 1. Main business development is steady, and overall gross margin has increased. In 2016, the company's main business revenue was 13.633 billion yuan, an increase of 16% over the previous year. Looking at industry segments, textbook and auxiliary business revenue was 2,619 billion yuan, down 4% year on year; general book business revenue was 1,313 billion yuan, up 10% year on year; journal revenue was 124 million yuan, down 8% year on year; printing business revenue was 215 million yuan, down 3% year on year; commodity trade and material sales business increased significantly, revenue was 10.098 billion yuan, up 22% year on year (the volume of commodity trade is expected to be reduced by 30% in 2017). Overall, against the backdrop of the decline in the traditional publishing and distribution industry, the company maintained its leading position in the region, and the overall gross margin of traditional businesses such as publishing, distribution, and printing increased. The trading business, which accounts for 78% of revenue, is expected to shrink in 2017, which may have an impact on the company's revenue. 2. The advantages of regional channels are obvious, and the market share is rising steadily. The company continued to expand marketing channels in 2016, and Xinhua Group strengthened joint marketing efforts by stores. Sales of this edition of teaching aids increased 10% year on year, and general book sales in this edition increased 32% year on year. In 2016, the company had a 3.20% share of physical stores in the national book retail market, ranking 4th in the National Publishing Group; the market ranking of online stores was 2.75%, ranking 6th in the National Publishing Group. The market rankings of physical stores and online stores were one place higher than last year, respectively. The preschool education business is developing rapidly, and the digital transformation has been very effective 1. The profit scale of the preschool education platform “Love Cube” and the coverage in the province continue to increase. In April 2016, the company's preschool education platform “iCube” was listed on the new third board, achieving annual revenue of 86.7483 million yuan, a year-on-year increase of 113.68%, net profit of 11.1623 million yuan, and rapid performance growth. “iCube” focuses on the “trinity” education service system of preschool curriculum, teaching aids, and cloud platforms. Currently, it has covered more than 200 homes and more than 50,000 registered users. “iCube” began a shareholding system reform in 2016, introducing strategic investors and core employees to invest in shares to enhance brand cohesion. It is expected that it will continue to expand in an extended manner, and the profit scale is expected to increase further. 2. The transformation of digital publishing and digital reading has achieved remarkable results. The “Changjiang Chinese Network”, the core of the company's digital publishing, currently has a website valuation of around 58 million, covering reading platforms such as PC and mobile devices. It has signed 12,000 works, 5.4 million users, 500,000 active users, a peak website PV of nearly 2 million, and an IP of over 100,000. In the future, it is expected to be the company's IP content engine, provide impetus for the further development of publishing resources and copyright extension services, and has the potential to develop the operation of the entire IP industry chain. At the same time, the company has completed the construction and operation of the “Hubei Education Resources Public Service Platform”, the “Yangtze River Preschool Education Cloud Service Platform”, the “Duoduo Education Community”, and the “Yangtze River Cloud Digital Reading Platform”, and the digital transformation has been very effective. 3. Seize the “Belt and Road” opportunities, and overseas projects have been launched one after another. In 2016, the company exported and introduced 135 types of copyright, and 5 projects, including “The Lost Wolf Pack”, were selected as “Silk Road Shuxiang Funded Projects” by the country. It has set up 3 subsidiaries in the UK, Kenya, and Hong Kong, and Chinese bookstore projects in London and Kuala Lumpur are under preparation. At the same time, the company grasped the “Belt and Road” opportunity and carried out strategic and capital cooperation with many countries: (1) Changjiang Children's Group and Russia's “Kids International” company signed a strategic agreement to sell the “Point and Click” series of playbooks to Russia; (2) the Education Agency set up the “Changjiang Media China-Arab Culture Editorial Office” in Egypt; (3) organized Russia's “Hubei Press, Publication, Radio and Television Week” event to expand international investment. The company's positive response to the “Belt and Road” policy is expected to help the company further expand its capital and culture abroad, strengthen its overseas layout and enhance international competitiveness while stabilizing its leading position in regional culture. 3. As the largest state-owned publishing and media group in Hubei Province, the company is actively carrying out digital transformation and business expansion while mainly engaged in traditional publishing, distribution, sales and other business development and stability: (1) Deeply involved in preschool education business, “Love Cube” has achieved remarkable development results and rapid performance growth; (2) As one of 36 national key online literature member organizations, the company has set up the “Hubei Education Resources Public Service Platform”, “Changjiang Preschool Education Cloud Service Platform”, “Changjiang Chinese Digital Network”, etc. Publishing and Reading The business is expected to develop deeply around the content industry chain; (3) The company has responded positively to the “Belt and Road” policy and has already initially taken the lead in building an overseas layout, and is expected to connect deeply with domestic and foreign investment, investment, and cultural exchange projects. We believe that the company's good grasp of market and policy trends will help to further realize the transformation and profitability of new media and new business formats in the future. The company's EPS for 17-19 is expected to be 0.59, 0.71, and 0.74 yuan. Currently, the corresponding PE is 15X, 12X, and 12X. The first coverage, a “highly recommended” rating, can be given 18 to 22 times PE in 2017, and the reasonable stock price corresponding to the next 12 months is 10.62 yuan to 12.98 yuan. 4. Risk warning 1. Policy risk; 2. Piracy risk; 3. Traditional business is affected by the market and declining.