Event

The company announced its three-quarter report on October 26 that its operating income in the first three quarters was 626 million, an increase of 10.03% over the same period last year, and its net profit was 229 million, an increase of 45.73% over the same period last year. In 2017, the company is expected to achieve a net profit of 303 million-394 million, an increase of 030% over the same period last year.

Brief comment

The performance is in line with expectations, and the revenue recognition of the boutique drama leads to the improvement of the performance. The sharp increase in the company's profits in the first three quarters is mainly due to the revenue recognition of the first and second quarters of "that Starry Sky and that Sea".

At present, the second season of the company's TV series "the Starry Sky and the Sea" is being broadcast on Hunan Satellite TV and Internet platforms such as iQIYI, Inc. and Sohu.com Ltd, with more than 1 billion views since its launch in October.

The game business brought revenue growth in the fourth quarter, and the sale of assets may bring some flexibility to the company's performance. 2017H1, the company has independently developed "Holy Land War" mobile games, "Titan three Kingdoms" mobile games, "Turomainland 2D" page games, "Mangji H5", "school beauty's close master H5" and other games that have been or will soon be launched, and the game business will continue to contribute profits in the fourth quarter. At the same time, the company sold a 30% stake in thumb game for 227 million (which has been approved by the M & A reorganization Committee and needs to be approved by the Securities Regulatory Commission). If the delivery is completed this year, it will also bring a certain return on investment to the company.

Investment advice and valuation: it is estimated that the operating income of 2017E, 2018E and 2019E is 1.066 billion, 1.318 billion and 1.564 billion respectively, and the net profit is 339 million, 418 million and 500 million respectively, and the corresponding EPS is 0.39,0.49,0.58 yuan, corresponding to 22X17PEPEPE18X18PE; the company's current valuation has a certain margin of safety. Optimistic about its strength to create boutique content, at the same time, with the diversification of topics and fields involved in the company, it will continue to make efforts to give the company a "buy" rating of 11 yuan.

Risk analysis: industry policy risk; film and television, game projects can not confirm the income on time.