Investment suggestion

The company reported 1H17 results, with revenue of 990 million, down 10.02% from the same period last year, and net profit of 89.17 million, down 11.7% from the same period last year. Downgrade the company to neutral and lower the target price by 33% to $9 per share for the following reasons:

Growth in the dairy sector was steady, but gross profit margin fell. Revenue increased by 11.8%, but due to the increase in raw material prices and financial expenses, there was greater pressure on the cost side.

During the reporting period, the gross profit margin of the dairy business fell 3.3ppt to 34.4%, dragging the composite gross margin down 3.1ppt to 33.51%.

The film and television media sector performed poorly under the influence of intensified competition and the rhythm of work confirmation. In the first half of the year, film and television business revenue fell 19.4%, the proportion of operating revenue fell 2.54ppt, gross profit margin fell 1.56ppt to 39.55%. According to the current progress of the project, several dramas such as "Drug War", "Marriage", "Roses and Biscuits" and "the time of you and me" are expected to confirm revenue this year. Generally speaking, the trend of high-quality production in the industry brings new pressure on the company's traditional project development. The company is actively responding to, cultivating and developing high-quality IP works, the effect remains to be seen.

The business of information services has increased steadily. In the first half of the year, the company's intelligent cloud customer service business changed from single banking to finance, Internet, communications, e-commerce, public utilities, modern logistics and other industries, with a substantial increase in the number of customer service seats and rapid business development. During the reporting period, the revenue of the information service business reached 92.07 million, an increase of 46.7% over the same period last year, and the proportion of revenue increased by 3.59ppt to 9.3%. In addition, the company continues to improve the layout of the information service industry, and in the first half of the year, the company launched the acquisition of 100% equity project of Zhouwang Technology. If the acquisition is completed, Zhuwang Technology and perfect online will be able to form good resource integration, complementarity and business extension in R & D, service content integration and optimization, customer diversion and other aspects.

What is the biggest difference between us and the market? The film and television industry is facing more fierce market competition, and the gross profit of the project has a further downward trend.

Potential catalyst: the difficulty of film and television distribution for second-and third-tier satellite TV has increased.

Profit forecast and valuation

Net profit for 2017 and 2018 was cut by 19.9 per cent and 22.0 per cent to 306 million and 362 million respectively, up 5.2 per cent and 18.2 per cent year-on-year, respectively. Based on the downgrade of performance and the downward revision of the valuation center, we lowered our target price by 33% to 9 yuan, corresponding to the 18-year price-to-earnings ratio 24x/21x of 2017. Downgrade to neutral.

Risk.

The film and television business has been transformed successfully, and the gross profit margin of the dairy business has rebounded.