Key points of investment:
Performance growth has exceeded expectations, and achievements in the cultural sector are beginning to show. During the reporting period, the company achieved total revenue of 2,446 billion yuan, an increase of 45.18% over the previous year; net profit attributable to shareholders of listed companies was 291 million yuan, an increase of 57.41% over the previous year; and earnings per share of 0.35 yuan, an increase of 50.83% over the previous year. Judging from the composition of revenue, dairy products and food, as the company's traditional business, had revenue of 1,116 billion yuan (+8.39%) in 2016, accounting for 45.65% of total revenue. The traditional dairy business maintained steady growth and a stable position in the industry; film and television production and advertising media, as the company's transformation and layout business, had revenue of 842 million yuan (+83.89%) in 2016, accounting for 34.44% of total revenue, and the transformation effect was quite good. Since the company began its transformation, in just two years, it has built the prototype of an ecosystem for the cultural industry. Synergies between industries have gradually developed. It can be expected that the cultural industry sector will continue to bring strong growth to the company's performance in the future.
Dairy industry sector: Maintain the leading position in the industry and continue to promote transformation and upgrading. The company's milk and milk series products have always been number one in the country. In order to consolidate the company's competitive advantage, the company has achieved the following points: 1) Build a high-quality milk source base. This year, standardized ranches such as Jianchuan and Weishan were completed and put into operation one after another, and the Guangxi Tianlin Southern Modern Grassland Animal Husbandry Promotion Project was effectively implemented. 2) Improve production technology. The main plant of the South China factory, which integrates functions such as production and processing of dairy products, warehousing and logistics, R&D and testing, etc., has been completed. It is expected to be put into operation in mid-2017, and the first phase of the Hunan Youshi Dairy Dairy Processing Base has been officially put into use.
3) Increase scientific and technological research and development efforts. Olafil's room temperature yogurt series products have received many honors, and the new product, Aitai Concentrated Fresh Milk, is leading the sales volume. 4) The marketing aspect. Continue to implement the strategy of “focus on products, focus on channels, focus on resources, and focus on profits”, build an online and offline sales platform for Internet+physical stores on the channel, and launch an “internal purchase event” in terms of marketing to set off a sales boom. 5) Brand promotion aspects. Implementing a diversified brand promotion model, the company's “LSSEEON” brand was recognized as a “well-known trademark”.
Cultural sector: Effectively promote synergies and enhance overall profitability. 1) Film and television industry. The company owns Huangshi Yujia Film and Television and Shengshi Hot Sun, so as to place equal emphasis on content and channels. Huangshi Yujia Film and Television accurately positioned and continuously launched excellent films. The top five movies and TV dramas achieved a total revenue of 370 million yuan during the reporting period.
Shengshi Jiaoyang continues to strengthen media channel expansion, and has combined operating platforms for new media and traditional media resources, greatly increasing the company's penetration from content to channels. 2) Preschool education industry. The preschool education market has huge prospects, or it may become a flashpoint for the company's performance. Taking a stake in Bihai Yinfan Technology Co., Ltd. is an important step in effectively connecting with other preschool education subsidiaries. The wholly-owned company “grows with you” has now opened vertical child care zones in more than 20 provincial operators, more than 100 cities, and nearly 1,000 county-level stations across the country, forming a cross-media broadcast network. The Baby Walking the World Family O2O interactive platform has also been launched in more than 30 cities in China and will be replicated to 100 cities across the country. 3) Internet channels. During the year, the company completed the acquisition of Perfect Online and invested in Yuedong, a cross-border e-commerce company for mother and child, and Yilian Video, which has a world-class SAAS platform. During the reporting period, all three companies performed well. With the provision of movies and TV dramas, animation and education for children, parent-child entertainment, children's derivatives, financial services, big data, and SAAS service technology, the company has developed strong, multi-dimensional business development capabilities, further strengthening the company's core competitiveness and operational capabilities.
Profit forecasting. In 2017, the company will continue to develop on the four major business pillar models of dairy products (consumer goods), film and television entertainment, children, and Internet channels, accelerate effective integration among business segments, give full play to inter-business synergies, and enhance the Group's core competitiveness and operational capabilities. We expect net profits attributable to shareholders of listed companies in 2017/2018 to be 539 million yuan and 791 million yuan, corresponding EPS of 0.64 and 0.94 yuan, respectively. Referring to the valuation level of cultural media companies of the same type, we gave the company a purchase rating of 13 yuan corresponding to 20 times the valuation in '17, corresponding to the target price of 13 yuan.
Risk warning. Business integration falls short of expectations; new online series and movie projects fall short of expectations; food safety risks.
