Key investment events: On the evening of April 19, 2018, City Media released the 2017 annual report. The company achieved annual revenue of 1,969 billion yuan, an increase of 11.03% over the previous year; realized net profit of 329 million yuan, an increase of 21.05% over the previous year; and realized net profit withheld from the mother of 280 million yuan, an increase of 10.05% over the previous year. The company plans to distribute a cash dividend of 1.50 yuan (tax included) for every 10 shares to all shareholders, with a dividend rate of 31.97%. The main business is growing steadily, and the quality of operations continues to improve. The company's profit level in 2017 achieved relatively rapid growth compared to the industry as a whole, while operating indicators continued to improve. The company's gross margin in 2015-2017 was 37.32%, 37.93%, and 38.78%, respectively, and net profit margins were 15.47%, 15.74%, and 16.88%, respectively, showing an upward trend year by year. Books generally account for a high proportion, and some categories lead the country, fully benefiting from the recovery of the industry. Revenue from the general book business increased 11.81% year on year, accounting for more than 75% of total revenue, fully benefiting from the recovery of the industry. The company's fashion and lifestyle books lead the country, with food books ranking first in the country for 9 consecutive years; thanks to the “Qingdao Publishing Cup” Go Open and training activities, etc., the market share of chess and card books has steadily ranked first in the country; and women's fashion books have risen to second place in the country. The market share of children's books and readers' recognition are also rising year by year. The teaching aid advantages of textbooks continue to be consolidated. Revenue from the textbook teaching aid business increased 6.26% year over year, and gross margin reached 47.28%. Compared with 2016, an increase of 3.08 pct, gross profit achieved a year-on-year increase of 13.66%. Acquire the remaining shares of “Happy Reading” and further advance IP development and operation. The company completed the acquisition of the remaining 49% of Yue Reading Ji's shares in Q4 2017, making it a wholly-owned subsidiary of the company. “Happy Reading” is the first publishing brand for women in China that specializes in reading, and has created a number of best-selling books. Among them, there is no shortage of phenomenal IP topics such as “Why Sheng Xiao Mo”, “Step by Step by Step”, and “To Youth”. The popular novels “If You Don't Meet Jiang Shaoling”, “The Lighter and the Princess Dress”, and “I Heard You Like Me” will soon launch a film and television project, which is expected to drive a new sales boom. Strategic cooperation with JD has accelerated the launch of themed bookstores. The company has created a themed bookstore operation model that organically combines book sales with cultural elements such as dining experience, lifestyle and leisure, art appreciation, and online interaction. A strategic cooperation framework agreement was signed with JD on September 7. More than 10 “complex cultural living spaces” have been built nationwide, and it is expected that no less than 50 will be built together by the end of 2018. Accelerate asset-based model replication and output. The film and television business is being actively promoted, and content production and IP incubation are promoted. At present, it has participated in a total of 9 investment projects in film and television. The film documentary “The Base” won the first prize of the China Documentary Award and the first prize of the Taishan Literature and Art Award from the China Guangzhou Association; the participating TV drama “My Dad Is Wonderful” was selected as a key project for the 2016 Beijing Cultural Quality Project, and the TV drama “Many Years You Were Late” will soon be broadcast. Promote the expansion of copyright assets and explore new business formats integrating multiple elements. The company invested 1 billion yuan to build the province's first fashion culture experience platform, Qingdao City Media Plaza, began trial operation on December 16, 2017. The Qingdao City Media Plaza is positioned as a “fashionable cultural experience platform”. It integrates elements such as copyright, fashion, art, technology, etc., and its business format is focused on fields such as reading experience, art experience, and fashion life experience, highlighting new cultural spaces and upgraded exploration. It is an important initiative of Qingdao Publishing Group to implement the “Strong Cultural City” strategy of the Municipal Committee and Municipal Government. Profit forecast and investment recommendations: We predict that urban media will achieve revenue of 2,269 billion yuan, 2,621 billion yuan, and 3,014 billion yuan respectively in 2018-2020, up 15.20%, 15.50%, and 15.00%; achieve net profit of 373 million yuan, 427 million yuan, and 495 million yuan, up 13.35%, 14.44%, and 15.96% year on year; corresponding EPS is 0.53 yuan, 0.61 yuan, and 0.71 yuan respectively. Maintain the buy rating. Risk warning: The publishing industry is sluggish; performance falls short of expectations; transformation and upgrading falls short of expectations; systemic risks.