Events:

The company received an inquiry letter about the Shanghai Stock Exchange on May 8, inquiring about financial issues such as operating cash flow, accounts receivable, inventory increase, acquisition of Century Changlong goodwill and shareholder reduction plan, etc., the company immediately organized relevant personnel to actively deal with it, and issued an announcement on May 12 to reply item by item, explaining the rationality of the relevant financial data, while showing that the company's traditional business is sound, and Century Changlong's performance is back on track. Tianyi Film and Television develops rapidly with the support of the Group, and the high growth of the company's performance is guaranteed.

Comments:

The large range of changes in the company's financial data is mainly due to the change of industry attributes after the acquisition of film and television assets, with the full support of the group, large project reserves and large capital investment, but in line with the industry average as a whole. At present, the competition among the major video websites is still fierce, the investment in the content cost is further increased after listing and financing, the advertising revenue of the head TV station is improving, and the payment ability and cycle are guaranteed. Under this background, the upstream boutique drama industry, as a content provider, maintains a high degree of prosperity. The company has entered the industry through the acquisition of high-quality assets, and has accumulated a lot of successful experience in production and distribution after three years of running-in, and is currently in a high growth stage of group support, shared interests and rich projects. The increase in accounts receivable was mainly due to the successful release of the 2016 film Tomb robbing Notes, which brought 570 million of the company's revenue (accounting for 46.97% of the film and television business revenue). In 2017, TV series with a longer account period accounted for a higher proportion of revenue; secondly, the negative operating cash flow is mainly due to further increased investment in the film and television sector. At present, the company has focused on strengthening cash flow management. 2018Q1 has realized a net cash inflow of 75.81 million yuan from business activities. After that, it will reduce the cash flow risk by pre-selling with downstream platforms or selling the investment share of some film and television works.

Deep industry resources combined with capital cost advantage, the company's ability to further realize commercialization is very considerable. Since the realization of the dual main business, the company has continuously accumulated high-quality resources in the film and television industry, and has gradually been certified by the headquarters successfully participating in the "Red Sea Operation" and other projects. At the same time, the good cash flow assets of the textile business provide a great advantage for the film and television business. In its inquiry and reply, the company disclosed that the total amount of credit available to the company by various financial institutions is about 4 billion yuan, far exceeding most companies in the film and television industry. The average annualized interest rates for short-term and long-term loans are 4.61% and 5.07%, respectively. And institutions are willing to continue to give priority to the development of the company in terms of credit lines and financing interest rate concessions. Relatively sufficient funds and low capital costs provide obvious advantages for the company to dig deep into the film and television industry. combined with the resources of the film and television industry that have been mastered and continuously accumulated in a positive cycle, the company has considerable room for further development of its commercialization ability. the status of the industry is expected to improve rapidly.

Mr. Wu Yi, who is deeply bound to the actual controller, is expected to achieve volume growth after the thick accumulation of film and television. Since the company entered the industry through the acquisition of high-quality targets, after more than 3 years of running-in, mutual understanding and the project reserve of film and television companies, the sense of trust between each other has been strengthened, and they have a more thorough understanding of their respective business capabilities. In particular, when the remaining 45% of Tianyi Movie was acquired in 2017 and the equity was tied to Mr. Wu Yi, the actual controller of Tianyi Movie, the company further increased its investment in the film and television sector and turned to fully support the development of the film and television industry. it has developed from one TV series a year to 5-6 TV dramas a year. In 2018, the broadcast of the boutique drama "the good Life" won the first place in the ratings of the same period of time, once again verifying the company's excellent production ability. In 2018, Tianyi Film and Television is expected to launch high-quality dramas such as "one step to the Heaven", "the decisive Court" and "Juvenile pie". It will also strengthen the layout of the film field and jointly produce a number of high-quality films such as "players behind the scenes" and "European Strategy". In 2019, it is expected to launch a number of boutique dramas such as "Cao Cao" (estimated to cost 10 million yuan per episode and sell for more than 20 million yuan per episode), "Dear Dad" and "Thunder Rose". With the support of the company, Tianyi Film and Television has sufficient reserves and high quality projects. It is expected to achieve volume growth.

After adjusting its business strategy, Century long has returned to the right track to ensure that on the basis of the main business of TV series, the film business pays attention to risk control, and is expected to achieve a net profit of not less than 60 million yuan in 2018.

In 2017, Changlong's performance fell short of expectations due to its focus on the development of new film business and TV series project cycle. The company adjusted in time in the second half of 2017. So far, the main control has filmed TV dramas such as "Grandma's Dumpling House", "Liao Junbo" and "you can win if you love to fight". According to the professional advice of accountants and asset evaluation reports, there is no need to mention the relevant impairment provisions at present. It has successfully released films such as "return of the Great Saints", "Tomb robbing Notes" and "extreme agents 3", and co-produced and distributed high-quality TV dramas such as "Marshal Peng Dehuai", "the Best arrangement" and "if Paris is unhappy". To maintain the two-line development of films and TV dramas. According to the company's public disclosure, it is expected to participate in or co-produce high-quality films such as "political and Secretary Liao Junbo", "Oolong Yuan" and "21 carats" in 2018, and produce quality dramas such as "Grandma's Dumpling House", "Liao Junbo" and "Baghdad of Life and death". The net profit is expected to be no less than 60 million yuan.

Traditional main business soundness + capital cost advantage + shareholders' interests are consistent, listed companies have obvious advantages in capital, resources, manpower and so on. Lugang's original textile main industry continues to actively develop new customers in the domestic new market, strengthen its cost advantage, and its performance has risen steadily. It has newly expanded downstream Zara, Uniqlo and other big brand customers, with good cash flow and fast turnover in traditional business, which will provide stable financial support for the company; there is no risk of change in the company's controlling shareholder, and Mr. Qian Wenlong, chairman, focuses on the development of the listed company and does not consider the development of other industries.

Investment suggestion: since entering the film and television industry through the acquisition of high-quality targets, the company has continuously strengthened the investment, production and distribution capabilities of TV dramas, films and online dramas, and has obvious advantages in the accumulation of resources in the industry. it has been verified by many successful works such as "Operation Red Sea" and "the good Life". At present, the long-term operation of the century is back on track, the early reserve project of Tianyi is making rapid progress, and the company's credit line is high and the cost of capital is low under the support of the group. at this time, we are firmly optimistic about the development of the company. The company is expected to make a net profit of 390 million yuan in 2018, corresponding to the target price of 8.4 yuan, maintaining the "buy-A" rating.

Risk Tip: the risk that the progress of the company's TV series project is lower than expected and the box office of the company's film project is lower than expected.