Key investment events: 1) On May 25, 2017, Huawei Culture issued an announcement to sell 30% of its Thumb Play shares to Tianrun Digital Entertainment, with a total consideration of 227 million, including 90.83 million in cash and 136 million shares. This transaction is yet to be approved by the Securities Regulatory Commission; 2) On June 9, the company issued an announcement to raise 1.2 billion yuan through a non-public offering of shares and issue no more than 172 million shares, all of which will be used in the production of the company's TV dramas and web dramas; 3) On June 12, the company issued an announcement. The actual controller Guo Binxiang advocated that the company's employees hold more shares in the company. Also Promise that if you keep and work for 12 months after increasing your holdings, the employee will be guaranteed a 10% profit guarantee, and the shortfall will be covered by it. Comment: The sale of the subsidiary Thumbs Up has generated investment income of about 147 million yuan. The company will focus more on the Internet culture field of “boutique dramas+boutique games” based on high-quality IP. In this transaction, Huawei Culture will receive 90.83 million yuan in cash, Tianrun Digital Entertainment's A shares of 104.4446 million shares, totaling 136 million yuan (13.05 yuan/share). At the end of 2016, the book value of 30% of shares calculated using the equity method was 796.54 million yuan. The transaction will generate pre-tax investment income of about 147 million yuan (the stock portion is calculated at an issue price of 13.05 yuan). Thumb Play is a game company that mainly focuses on game distribution. In 2016, revenue was 218 million yuan and net profit was 43.73 million. With this asset sale, on the one hand, the company will receive 90 million in cash. On the other hand, the company's current strategy is quality drama production and boutique game development based on high-quality IP. We believe that breaking away from Thumb Play, which focuses on publishing, will enable the company to focus more on content production and development, which will help it continue to deepen the field of Internet cultural content. The fixed increase of 1.2 billion yuan will be invested entirely in TV series and online drama production to support the Dream Star Park Film and Television Bureau's business and consolidate the company's position in the premium drama production market. The company plans to increase 1.2 billion yuan, all of which will be used for the production of film and television drama projects for the company's subsidiary Dream Star Garden, including 4 TV series and 5 web dramas, with a total investment of 2,038 billion yuan, of which the company invested 1,881 billion yuan. We believe that, on the one hand, Dream Star Garden, as the first-tier boutique drama production company in China, has produced leading works including “The Cooking Lady”, “Abandon Me, Hold Me”, and “That Starry Sky, That Sea”. Currently, the purchase price of the boutique drama market continues to reach new highs, but production costs are also gradually rising, requiring relevant production companies to have strong financial strength. This fixed increase will provide sufficient working capital to lay a solid foundation for its subsequent premium content production; on the other hand, 2017 is the last year that the company's subsidiary Dream Star Garden promised to increase its performance. The injection will also guarantee a period Performance continued to grow steadily even after the gamble ended. Encourage employees to increase their holdings, provide relevant guarantees, and enhance the synergy of interests between employees and shareholders. Guo Xiangbin, the actual controller of the company, discussed that the company's employees increase their holdings of the company's shares, and promised that if they hold and serve for 12 months after the increase, employees will be guaranteed 10% of the earnings, and the shortfall will be covered by it. The upper limit of the quota is 100,000 yuan/person for ordinary employees, 200,000 yuan/person for supervisors, middle management (manager level), 500,000 yuan for middle management (manager level), and 2 million yuan/person for the subsidiary's general manager and senior management. Combined with the company's 2016 annual report, we expect the current increase in holdings to be between 200 and 150 million yuan/person., account The current total market value of the company is about 1.44%-1.8%. We believe that by encouraging employees to increase their holdings and signing a 10% guarantee agreement, the majority shareholders can bind the interests of the company's shareholders, managers and employees more deeply, enhance the synergy of interests among relevant stakeholders, and benefit the company's medium- to long-term development. Growth points in 2017: TV series: The second and third seasons of “That Starry Sky, That Sea” will be the main revenue force in the Huawei Culture TV series sector in 2017. As a quality romance drama production company, Dream Star Garden has always had good cooperation with leading TV channels, with the famous writer Tonghua as creative director, and has a large reserve of high-quality IPs. Game: Have the first wave of interaction with acquisition events to guarantee performance. At the same time, we will continue to explore in depth the commercial value of IPs such as “The Age of Reckless” and “The Snow Eagle”. The “Snow Eagle” TV series and movies are already being promoted. They are also collaborating with Light Pictures to shoot movies around the “Despicable Age” IP to achieve commercialization of all high-quality IP platforms. The game programs in reserve also include “School Flower's Personal Master”, “Master Fishing”, and “Battle of Intellect.” Cooperate with Beijing Qihu to carry out Internet reading and related business. Huawei Culture's shareholding company Chuangyue Culture and Beijing Qihu reached a cooperation agreement to jointly increase the capital of Chuangyue Culture, a subsidiary of Chuangyue Culture. Huayue Culture's core business is the creation, editing, distribution, and promotion of online novels based on an Internet platform. 360 Group promises to transfer its current Internet reading business and related intangible assets to Huayue Culture Company. We believe this is a tripartite alliance between Huawei Culture, Qihu, and Fu Qiang. It is hoped that the strengths of all parties will be fully exploited and synergies achieved. Profit forecast: We expect the company's operating income in 2017-2019 to be 10.99, 1,551 and 1,551 billion yuan respectively, and realized net profit attributable to the parent company of 3.80, 4.72 and 513 million yuan respectively, corresponding to EPS of 0.44, 0.55 and 0.60 yuan, respectively. Huawei Culture is dominated by quality content, and expanded in an orderly manner. The company was given 26xPE in 2017, with a target price of 11.45 yuan, maintaining a “buy” rating (since asset sales and additional issuance are currently uncertain, profit forecasts have not yet taken into account the impact of both). Risk warning: 1) The progress of the launched product did not meet expectations; 2) The performance of the target of mergers and acquisitions did not meet expectations.