Main points of investment:
The new tour is coming online one after another, and the high growth of the annual performance can be expected. In the third quarter of 2017, the company achieved an operating income of 154 million yuan, an increase of 22.88% over the same period last year, and a net profit of 29.1 million yuan, down 31.66% from the same period last year. The company's single-quarter profit declined in the third quarter, on the one hand, due to the late launch of Crouching Tiger, Hidden Dragon II, the main action martial arts 3D mobile game in the second half of the year (iOS on August 9 and Andriod on August 16), while reducing the promotion of old products for new games, the short-term gap caused by the switch between new and old products caused a decline in game revenue. On the other hand, due to the strict implementation of the policy of "one teaching, one assistant" in Hunan, the company's traditional teaching and auxiliary distribution business has been affected to a certain extent. Considering that in the fourth quarter, in addition to featuring the new film "Crouching Tiger, Hidden Dragon II", the company will also have "Supreme Master", "the rise of the Empire of the Qin Dynasty", "the Legend of God Daji", "Journey to the West" and other games will be launched one after another. at the same time, the games developed by the company, such as "Xuan Xian", "Crouching Tiger, Hidden Dragon", "rekindling the World" and "five Tigers", which were independently developed by the company, still maintain good sustainable profitability. The company's annual performance is expected to maintain rapid growth.
Acquisition of new technology, improve the layout of the whole industry chain of mobile games. The company intends to acquire 73% of the equity of Chuanmian Technology, combined with the fact that the company already holds 27% of the equity of Chuanmian Technology. After the completion of this transaction, Chu Jian Technology will become a wholly-owned subsidiary of the company. The company acquired Magic Times and Youai online plus-coded mobile game business in 2014 and 2016, and the two subsidiaries have accumulated profound experience in the research and development of games such as RPG and SLG. This merger and acquisition will enhance the release strength of the company's mobile games, achieve good coordination and complementary resources with the company's original high-quality R & D capabilities, and realize the layout of the company's entire industry chain from game research and development, distribution to operation. accelerate the growth of the game business.
The three major plates work together to accelerate the transformation of cultural industry groups. The company focuses on three major sectors: education, pan-entertainment and culture, and continues to promote transformation and upgrading. In the education sector, the company invested 200 million yuan to control the people's book, effectively integrate external education resources, and improve distribution channels; at the same time, the company's participating "O2O education online platform" decisive shares landed on the new third board to speed up the company's layout in the field of Internet education. Pan-entertainment plate, extension mergers and acquisitions accelerate business development, the company has completed the acquisition of magic era, Youai network, and plans to acquire first-time technology, focus on building the game industry chain, accelerate to enter the first camp of China Mobile Limited Internet entertainment industry. In the cultural section, the company holds hands with the people's Publishing House to jointly invest in people's Tianzhou, becoming the first batch of foreign publishing enterprises in China, taking cultural communication as a link to provide high-quality cultural products.
Profit forecast: we expect the EPS of the company from 2017 to 2019 to be 0.42,0.50 and 0.59 yuan respectively. Referring to the consensus expectations of game industry fun Technology, Century Huatong and Soul Network that PE will be 25 times, 32 times and 36 times respectively in 2017, we give the company 30 times PE in 2017, with a target price of 12.6 yuan, maintaining a buy rating.
Risk Tip: the main business of traditional books is declining; the layout of mobile games is not as expected.