Events:

The company announced its annual report for 2017, with revenue of 1.79 billion and net profit of 165 million, which were 14.3% and 8.72% respectively over the same period last year, and earnings per share were 0.17 yuan. Distribution plan: 0.80 yuan (including tax) in cash dividend for every 10 shares, 0 shares (including tax) for bonus shares, and 3 shares for every 10 shares in the capital accumulation fund to all shareholders. In 2018, the first quarter reported revenue of 479 million and net profit of 50.98 million, which were 12.73% and 6.21% respectively compared with the same period last year.

Comments:

1. Structural adjustment promotes the company's piano gross profit margin to increase by 3 percentage points.

In 2017, the company's main business income was 1.767 billion yuan, an increase of 14.73% over the same period last year, mainly due to the continuous growth of the piano business scale, the continuous optimization of the product structure, the continuous development of the high-end product Caesar series and the Schimmel brand on the right track. Among them: the piano sales of Caesar Castle increased by 13.40% compared with the same period last year, the sales of Schimme pianos purchased in 2016 were 1903, and the sales of sub-brand Fridolin were 2558, which promoted the company's piano unit price to increase by 3.2%, and the gross profit margin increased from 29.82% in 16 years to 33.00% in 2017. The company has started the relocation work in the second half of 2017 and will speed up the construction of Zengcheng Pearl River Piano National Cultural Industry Base to minimize the impact on the company's operation.

2. The music and art training business is still in incubation.

The company's education and training business revenue in 2017 was 47.21 million yuan, an increase of 145% over the same period last year, but it is still in the process of business incubation. The company has set up education stores in Beijing, Guangzhou, Foshan, Jinan and Fuzhou, and launched art education products such as Pearl River Enuo's falling in love with keyboard and other courses, Pearl River piano art classroom (with a total development of nearly 600 franchisees), Pearl River piano intelligent piano IN series, GEEK intelligent musical instruments of fun Technology, magic color personalized intelligent acoustic piano and other art education products.

3. The post-piano service market is being built.

Along the value chain of post-piano service, the company will build Internet business scenarios around pianos, customers and users. at present, the company has set up a joint venture company piano fun technology to operate piano post-piano service market business. at present, we have established "91 piano interest", "91 tuning" and "piano cloud school" musical instrument cloud service platform, and strive to create a leading "cloud piano service" ecosystem. Build a closed-loop industrial chain of "manufacturing-renting-selling-service-education".

4. Downgrade to "prudent recommendation-A" rating. While steadily developing the piano business, the company uses its own brand, channel advantages, financial strength, and listing platform to develop music art training and post-piano service market, so as to grasp the huge market space for consumption upgrading in art training, a segment of the field. However, we estimate that the music art training business will still need some time to incubate and be downgraded to the "prudent recommendation-A" rating in a short period of time. It is estimated that the EPS of the company from 18 to 19 years is 0.17,0.18 yuan respectively, and the corresponding 18-year PE and PB are 58.4,3.2 respectively.

5. Risk hint: music art training business is lower than expected.