Events:

The company announced on April 9 that it is expected to achieve a net profit of 23.5 million yuan to 26.2 million yuan in the first quarter of 2018, an increase of 157.58% and 187.17% over the same period last year.

Comments:

1. The abundance of boutique drama projects breaks the shackles of the season and contributes to a substantial increase in performance in the first quarter. In the first quarter of 2018, the company expects to achieve a year-on-year increase in net profit of 157.58% and 187.17% over the same period last year, mainly from the copyright revenue of the first round of satellite TV "We are young in wartime" and some overseas distribution revenue of "Ba Qing Zhuan". Income from projects such as "Donggong" and "Feng Zicai" is expected to be confirmed in the second quarter of 2018, and is expected to continue rapid growth on the basis of 59.35 million return net profit in the first half of 2017, break the seasonal shackles, and significantly enhance performance stability.

2. In the short term:

The company has entered a period of rapid growth to promote high performance growth, and the number of boutique dramas and the scale of single dramas have continued to increase. In 2017, after deducting the impact of the "The Voice of China", the performance growth rate was nearly 100%. In addition to the projects that are expected to be confirmed in the first quarter and the second quarter, according to the company's public information, the projects that have been turned on or are to be turned on include a fashion play starring Fan Bingbing, "A lifetime of desperation and tenderness", "lose and win", "Vermilion Bird" and so on, which are expected to boost the company's sustained high growth in 2018-2019.

3. 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 advice: the company has a wealth of boutique drama projects, breaking the shackles of the season, promoting the company's performance in the first quarter of 2018 compared with the same period last year, and is expected to continue high growth throughout the year from the current project progress; the company is expected to further consolidate its position in the industry with its strong production capacity, advanced assembly line production model, many top professional teams and a large number of high-quality project reserves. We expect the company to achieve a net profit of 480 million yuan in 2018, corresponding to 1.20 yuan per share. Refer to similar comparable companies to give a 25X valuation to EPS in 2018, and maintain a "buy-A" rating corresponding to a six-month target price of 30 yuan.

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.