Main points of investment:

It is proposed to inject into the group's traditional publishing target and consolidate the whole industry chain of "editing, printing, distribution and supply". The company announced on October 21 that it intends to acquire Liaoning Xinhua Printing Company and Liaoning Publishing and Printing material Distribution Park with cash, with an estimated acquisition capital of 400 million yuan. Injected into Liaoning Publishing Group, the controlling shareholder of the target company, the business covers the whole industry chain of traditional publishing, Xinhua Printing mainly deals with publication printing, and the Industrial Park of Publishing and Printing Materials Distribution integrates book publishing, material supply, printing production, logistics and distribution. This asset injection of the company will enhance the strength of the company's traditional publishing and distribution business, and at the same time benefit the intensive management of the company's traditional main business. Give full play to the intensive advantages of the group, strengthen the synergy of the company's "editing, printing, distribution and supply" industry chain, the company's management and sales expenses are expected to be reduced, and strengthen the company's main business profitability again after the completion of the internal reform in the first half of the year.

The revenue of the traditional main business still rose, and the net profit increased sharply in the three quarters. According to the company's third quarterly report, the operating income in the first three quarters was 1.303 billion yuan (+ 0.89%), and the main business revenue was 1.28 billion yuan (+ 0.89%), belonging to the net profit of shareholders of listed companies of 84 million yuan (+ 42.48%). With the development goal of "second Entrepreneurship" as the core, the company continues to consolidate the main business of publication and distribution, the integration transformation continues, the online and offline sales channels are expanded, the general book sales are increased compared with the same period last year, and the brand effect is enhanced. At the same time, the effectiveness of the three fees management remains the same, and the three fees decreased by 10.3% compared with the same period last year.

At the right time for the reform of state-owned enterprises, great education and pan-entertainment will be the new focus of the company. With the rise of the reform of state-owned enterprises, the company is the key object of the reform of traditional media enterprises in Liaoning Province, which has been highly valued by the provincial party committee and provincial government and the Provincial Radio, Film and Television Bureau and other relevant departments. After the new management took office, the company began the journey of "starting a second venture". The internal reform was completed in the first half of 16 years, the traditional publishing and distribution business developed steadily, the external capital operation was increased, and the diversified operation has taken shape. The layout of the cultural and financial sector covers "banking, securities, insurance", and the investment income has increased compared with the same period last year. We believe that the company's big education based on teaching materials is an important point of view. on the one hand, the company has established close ties with schools and educational institutions in the province for many years, on the other hand, the company will rely on existing resources to develop into Kmur12, vocational, early childhood education and other fields. There is huge room for imagination in the future. In addition, we are optimistic that the company will set up a cultural industry fund to focus on the pan-entertainment industry, actively seek high-quality film and television animation, games and other cooperation projects, and are expected to intervene in the pan-entertainment industry.

Profit forecast and valuation. It is estimated that the EPS of the company from 2016 to 2018 is 0.20,0.24 and 0.27 yuan respectively. Referring to the same industry, the PE of Wanxin Media, China Media Holdings and Reader Media in 2016 is expected to be 36 times, 54 times and 76 times respectively. In view of the small market capitalization of the company, the recent transformation measures have been implemented one by one, and the reform and transformation is strong, we value the company 65 times in 2016, corresponding to the target price of 13 yuan. Give an overweight rating.

Risk hint. The market systemic risk, the company transformation does not live up to expectations.