Main points of investment

Event 1: Dilong Culture released its annual report in 2017. the company's annual revenue was 3.063 billion yuan, an increase of 85.61% over the same period last year, and its net profit was 549 million yuan, an increase of 45.01% over the same period last year. Among them, Meisheng yuan realized net profit of 481 million yuan, Dilong new materials achieved net profit of 43.666 million yuan. The company plans to pay a cash dividend of 0.7 yuan (including tax) for every 10 shares, with a dividend rate of 10.85%.

Event 2: the company released its quarterly report for 2018, with revenue of 888 million yuan, an increase of 79.47% over the same period last year, and a net profit of 166 million yuan, an increase of 109.35% over the same period last year. The company expects to achieve a net profit of 310 million yuan to 380 million yuan from January to June 2018, an increase of 51.79% and 86.06% over the same period last year.

Mobile games continue to make efforts, and online mobile games enter the harvest period. The company achieved substantial growth in game business in 2017.

Stand-alone mobile games: revenue reached 657 million yuan in 2017, an increase of 104.90% over the same period last year, accounting for 21.45% of total revenue and a gross profit margin of 46.35%. As the leader of A-share single-machine mobile games, the company has steadily increased its market share in single-machine mobile games, and single-machine mobile games has become an important cash cow business of the company. In the whole year, nearly 40 mobile stand-alone games were developed and released by agents.

Online mobile games: revenue reached 167 million yuan in 2017, an increase of 159.01% over the same period last year, accounting for 5.47% of total revenue and 65.61% gross profit. The company started its only generation in 2017, and launched "Dream Stone tools OL", "Fairy Soul", "Magic Myth", "Legend of Dragon Immortals", "Jiujie Fu Magic record", "Bath Blood Sky", "dimensional summoner" and other boutiques. Among them, "bathing the blood in the sky" has been recommended by Apple Inc officials many times. The company is also expanding the layout of the H5 game market. The online game business has gradually entered the harvest period.

Mobile advertising business broke out, accumulating rich data and experience. The revenue of advertising promotion business reached 1.123 billion yuan in 2017, an increase of 382.05% over the same period last year, accounting for 36.67% of the total revenue and 16.02% of the gross profit margin. The company accelerates the expansion of advertising business with the help of high-quality resources such as channels, customers and advertising platforms accumulated by the game business, and has become the company's largest business. Because of its low profit margin, the gross profit margin and net profit margin of the company as a whole are lower.

IP as the core, the pan-entertainment strategy is actively promoted. The company with IP as the core, actively layout games, film and television, variety, animation and other pan-entertainment industry chain.

The company has accumulated rich experience in adapting IP mobile games, such as "Happy Baby forward" and "the Ultimate showdown of Pig Man" in animation IP, and "Shining Dad" and "24 hours" in film and television variety IP.

Sun Gong Simolong Pictures has made continuous efforts in the film and television side, jointly investing in the TV series "Tiankeng Falcon Hunt" with Guangming Pictures, which is adapted from the novel of the same name, with Gao Mingqian as the chief producer, Ren Quan as the co-producer, and famous director Cheng Zhichao as the director. Wang Junkai and other actors.

Actively expand overseas business, introduce high-quality IP resources, explore high-quality overseas projects. SEDIC-DILON, a joint venture with Sadik International Co., Ltd. of Japan, has set up a joint venture in Japan to expand its pan-entertainment business.

The revenue of traditional building materials business is stable, and the profit level is declining. In 2017, the revenue of the building materials business reached 1.076 billion yuan, an increase of 6.72 percent over the same period last year. However, due to the increase in the price of raw materials, environmental protection requirements for coal to gas, equipment technical reform and other factors, the cost increased sharply, and the gross profit margin was 19.87, a decline in 4.03pct compared with the same period.

With the change of the board of directors, the new chairman promises profits, and the new management has rich experience in the entertainment industry. The board of directors of the company held a general election at the end of 2018. Yu Haifeng, former chairman and general manager of Meisheng yuan, was elected as the new chairman of the listed company, promising that the company's net return profit from 2017 to 2020 would not be less than 700 million yuan, 850 million yuan and 950 million yuan. At the same time, the board of directors hired Bo Bin, deputy general manager of Meisheng Yuan, as the general manager of the listed company. The new management has rich experience and resources in the cultural and entertainment industry, and the company will be more competitive in the pan-entertainment industry in the future.

The extension layout is accelerated, and the acquisition of Mi fun to enhance the company's game R & D and distribution strength. Meishengyuan, a subsidiary of Dilong Culture, acquired Shenzhen Mitchell Technology Co., Ltd. for 236.8 million yuan in February 2018. The original shareholders promised that the net profit for 2018-2020 would not be less than 22 million yuan, 27 million yuan and 32 million yuan. This acquisition will further enhance the company's strength in game research and development, distribution and mobile advertising, while thickening the company's performance.

Profit forecast and investment suggestions: we predict that the income of Dilong Culture from 2018 to 2020 will be 13.835 billion yuan, 4.604 billion yuan and 5.404 billion yuan respectively, an increase of 25.20%, 20.06% and 17.38% over the same period last year, and the net profit of 723 million yuan, 886 million yuan and 1.042 billion yuan respectively, up 31.72%, 22.49% and 17.67% over the same period last year. The corresponding diluted EPS is 0.85,1.04,1.22 yuan respectively.

Risk tips: 1) the game flow is not up to expectations; 2) the market competition is intensified; 3) the project process is not up to expectations; 5) systemic risk.