Events:

The company announced on February 27, 2018 that its operating income in 2017 was 1.252 billion yuan, an increase of 58.84 percent over the same period last year, and its net profit was 213 million yuan, an increase of 19.09 percent over the same period last year.

Comments:

1. The growth of the main business performance is significantly in line with expectations, and the ability to produce outstanding boutique dramas has been verified. According to the company announcement, the impairment of the "The Voice of China" project in 2017 is about 141 million yuan. excluding this effect, the company's return net profit is conservatively estimated at 355 million yuan (the final performance may slightly exceed), an increase of 97.93 percent over the same period last year. The company's 2017 performance mainly comes from boutique dramas such as "Ba Qing Zhuan" (formerly known as "winning the World", the price of the first single episode of Internet + Satellite TV is about 14 million), "that year's Flower and Moon is full", "Dear, long time no see" and other boutique dramas, fully demonstrate the company's strong production ability of boutique dramas.

two。 The channels for the realization of boutique dramas are diversified, and the 2C and sea markets are developing rapidly. According to data released by major online video sites, the total number of paid users is expected to exceed 120 million in 2017 and 250 million in 2018, and the scale of the paid market is expected to increase to more than 50 billion.

As boutique dramas are the most powerful content for video websites, as the major online video websites continue to compete fiercely, their prices are expected to further increase, and it is expected to launch a pay-per-part / episode-based on-demand model to further expand the 2C market. As the overseas distribution rights of the boutique drama "chasing the Night" were purchased by Netflix at a higher price at the end of 2017, the overseas distribution price of "Baqing Legend" hit a new high in early 2018, and domestic boutique dramas are gradually recognized by overseas mainstream media, and its overseas distribution revenue is expected to grow rapidly. Because of its rich production capacity and abundant reserves, the company is expected to fully benefit from the increase in copyright prices of boutique dramas and the diversified trend of cash channels.

3. In the short term:

The high growth in performance comes from the fact that the company has entered a period of rapid growth, and the number and scale of projects have increased significantly.

After deducting the influence of "The Voice of China", the performance grew by about 100% in 2017. And according to the progress of the project announced by the company, the project income of "win the world" overseas and satellite TV two or three rounds, "that year blossoms" overseas and satellite TV two or three rounds, "Feng Zicai", "We are young in wartime" and other projects are expected to be confirmed in the first half of 2018. Year-on-year low base is expected to achieve ultra-high growth, break through the seasonal shackles And the company's existing and planned startup projects such as "East Palace", "Anaya Love", "lone throwing tenderness" and "Vermilion Bird" are expected to promote the company's sustained high growth from 2018 to 2019.

4. In the long run:

The main contents are as follows: 1) the production and distribution capacity is outstanding, and the reserve projects are rich and continuous. Since its inception, the company has produced dozens of TV dramas, most of which are broadcast in prime time on satellite TV channels, and a number of works have won the first place in the same period of time. According to CMS data, in 2010, the company's "Eternal Wave" was broadcast on CCTV's comprehensive channel, ranking first in the same period of viewing; in 2012, the company's "Glorious Land" was broadcast in Beijing TV's prime time, ranking first in Beijing's prime-time TV ratings; in 2014, the company's "after Naked Marriage" was broadcast on Zhejiang Satellite TV, ranking first in the same period of time. At the end of 2014, the company's boutique drama "the Legend of Wu Mei Niang" received more than 10 billion online hits. On its first day of broadcast, the national network watched 2.14, with an average rating of 3.1. The finale ranked first in the same period, ranking first in the same period of time. It has become the TV series with the highest ratings except "in the name of the people" in the past decade, and the company's boutique production ability has been recognized by the industry. According to the company announcement, the 2017 company's boutique drama "winning the World" was broadcast by Youku, Jiangsu Satellite TV and Oriental Satellite Television. The total price of the first round broadcast rights of Internet and Satellite TV was nearly 14 million yuan, of which the price of the first round broadcast rights of satellite TV exceeded 6 million yuan. A new high in entrepreneurship.

The company has "East Palace", "Manmenqingluo", "Vermilion Bird", "together with the son", "mysterious Taxi" and other projects are under way, and there are dozens of original script reserves, because the company has the ability to produce high-quality dramas, it is expected to continue to produce boutique works.

2) the company uses the assembly line production mode to output high-quality products stably, which is in line with the industrialization development trend of the film and television industry. Different from the studio production mode adopted by the domestic traditional TV drama companies, the company adopts the assembly line sectional production mode, that is, each link is completed by the most professional people assigned by the company, including producer, director, screenwriter and so on. Under this mode, on the one hand, the company can directly control each link and better control the cost, so as to ensure that the company's project gross profit margin is at a high level in the industry; on the other hand, the company can ensure that each link is highly specialized, thus improving the overall quality of the work; and the assembly line model is conducive to large-scale, sustained and stable output of high-quality products, in line with the development trend of industrialization of the film and television industry, and fully release the company's production capacity.

3) the top professional team continues to flow in to ensure the output of high-quality projects. According to the company announcement and its website, at the beginning of the company's listing in 2015, the company has established stable and long-term cooperative relations with well-known screenwriters Sheng Heyu, Qi Xing, Liu Hua, well-known directors Huo Jianqi, Gao Yijun, Teng Wenji, and well-known actors Fan Bingbing, Zhao Wei, Zhang Fengyi, Weizi and other entertainers by hiring, investing and setting up joint ventures. In 2016, the company established a long-term cooperative relationship with well-known screenwriter Wang Mingjuan, well-known film editor and director Xu Hongyu, senior column director Sun Ying, senior film distributor Zhao Jun and other industry professionals by means of increasing capital and setting up joint ventures. In 2017, the company once again established a long-term cooperative relationship with many professionals or professional teams in the industry, such as famous actor Wang Zhifei and his team, famous producer Jia Xiaohu, senior column director du Yan, and so on. By bringing together all kinds of top teams, the company can ensure the high professionalism of every link in its assembly line production, so as to ensure the quality of the works and continuously output high-quality works.

Investment suggestion: the company's main business performance increased significantly in 2017. Series such as "Ba Qing Zhuan" and "the full moon blossomed that year" fully proved that the company has the ability to produce head plays. With its strong production capability, advanced assembly line production model, many top professional teams and a large number of high-quality project reserves, the company is expected to continue to launch boutique dramas and gradually increase production. Will fully benefit from the increase in copyright prices for boutique dramas and the trend of diversification of cash channels. We expect the company to achieve a net profit of 480 million yuan in 2018, corresponding to 1.20 yuan per share. The closing price on February 27, 2018 corresponds to the closing price on February 27, 2018, which corresponds to only 16.2 times the net profit in 2018, and only 18 times if the additional issuance is considered. Maintain the "buy-A" rating.

Risk hint: the risk that the rising production cost of film and television projects leads to a decline in profitability, the tightening of policy supervision leads to the risk that the release progress of film and television projects is lower than expected, and the broadcast effect of "Ba Qing Zhuan" is lower than expected.