Main points of investment

Event

Recently, the company released an interim report that in the first half of 2017, the company realized operating income of 636.1813 million yuan, an increase of 54.08% over the same period last year, and a total profit of 137.0982 million yuan, an increase of 131.02% over the same period last year. The net profit attributed to the owner of the parent company was 132.5159 million yuan, an increase of 191.20%, 0.16% and 166.67% respectively.

Comment

The income of the subsidiary company has increased and the layout of the cultural sector has been gradually improved. In the first half of 2017, the company's operating income increased by 223.2974 million yuan over the same period last year, an increase of 54.08% over the same period last year, mainly due to the increase in value interaction and Xinhua Vanguard compared with the same period last year, as well as the addition of Aurora Mobile Limited network in this period, resulting in a total increase in sales revenue of 246.559 million yuan. Of this total, the operating income of the manufacturing sector reached 207.791 million yuan, down 7.7% from the same period last year. The operating income of the culture sector reached 428.3903 million yuan, an increase of 128.17% over the same period last year. In terms of three fees, sales expenses and management expenses increased by 65.22% and 60.24% respectively compared with the same period last year. Also due to the consolidated statements of the three subsidiaries, the financial expenses increased by 125.49% compared with the same period last year, mainly due to the increase in bank financing and the issuance of 600 million yuan of bonds in the first half of 2016, which led to an increase in capital interest.

Layout of film and television boutique content, develop overseas wholesale business. Among the films invested by the company in the first half of 17 years, "the Great cause of Building the Army" and "Xiu Chun Dao Shu Luo Battlefield" grossed 379 million and 265 million respectively. In addition, over the past 17 years, the company has also invested in filming key plays such as "Farewell to Las Vegas", "here comes the Police Dog", "the out-of-stock Man on Orange Street", "the Old Boy", "all the idiots are here", "Youth-related days" and "Lovers in Hell". The company plans to create "phenomenal" movies and TV series as the goal of the company's next content production, and promote the development of key IP projects in the whole industry chain within the company. Adhere to the principle of sound investment in film project investment, fully guard against market risks, and gradually develop overseas film wholesale business.

Research and development and "page changing hands" are carried out at the same time to actively expand the mobile game business. The main game projects operated by the company are: page game "Wu Shen Zhao Zilong", "Journey to the West", "Jiutian Fengshen", mobile games "Pokemon Reproduction", "duel City", "Little three Kingdoms", "death Awakening" and other projects. among them, the cumulative flow of "Wu Shen Zhao Zilong" has exceeded 600 million yuan at the end of the reporting period, and its Thai version and South Korean version have been put into operation in April and June respectively. The company will further bind high-quality CP to mobile games products, expand self-research lines and increase overseas distribution lines. The page tour projects being developed by the company, such as "do not stop painting the Cup of Rivers and Lakes", "World Fairy King" and "Moonlight Treasure Box", will be launched in the second half of the year. In 2017, the company will speed up the training of mobile game R & D talents. Aurora Mobile Limited Network will set up two mobile game teams, one team will focus on promoting the "page changing hands" project, and the other team will launch high-quality mobile games with the goal of boutique mobile games. We expect that with the continuous increase of the company's mobile game products, the game business is expected to become a new growth point of the company's profits.

Investment suggestion

In the first half of 17 years, the company's performance growth was mainly driven by the merger of three subsidiaries, namely, Vanguard, Xinhua and Aurora Mobile Limited Network. However, with the company's continuous layout of film and television boutique content, the company's boutique film and television products will gradually expand, which will lead to the growth of film and television business revenue. at the same time, the company is also trying to carry out research and development and "page transfer" at the same time to expand the mobile game business. it is expected to become a new growth point of the company's performance. We estimate that the operating income of the company in 2017, 2018 and 2019 is 1.819 billion, 2.15 billion and 2.509 billion respectively, the net profit attributable to the parent company is 335 million, 432 million and 555 million respectively, and the earnings per share are 0.40,0.52,0.67 yuan respectively, and the corresponding PE are 51.29,34.96,27.16 respectively.

Risk hint

The box office of the film fell short of expectations. The competitiveness of mobile game products is insufficient.