Traditional molybdenum companies that have successfully entered the film and television industry have proven products and existing reserves should not be underestimated. The original main business, the molybdenum industry, was greatly influenced by the steel industry cycle and competition pattern. Listed companies actively sought transformation after operating losses in 2015. Beginning in 2016, they completed zero-consideration acquisition of subsidiary Ji Xiang Cinemas, 51% holding subsidiary Jixiang Tianyou, vigorously developed transformation work such as film and television business, participation in entertainment investment funds, and supporting equity transfers and management changes. Beginning in 2017, the film industry contributed 70% to net profit. The next few years were rich in reserves, and the transformation of the dual main business was successfully achieved.

The idea of entering the film and television industry is clear: the output value of the big entertainment industry is impressive. Among them, downstream competition in the TV drama industry is particularly favorable to leading works, and the supply of high-quality content verifies that watching movies is just what is needed. Research shows that several major video platforms are still fiercely competitive and have relatively sufficient ammunition. In order to drive the growth of paying users, they will further invest in copyright content in the next two years, using leading works to seize paid memberships and advertising budgets (Youku's 2018 copyright budget was 30 billion, Tencent Video 25 billion, iQiyi 10 billion). The price of the top repertoire in 2017 was far from peaking; several representative films in the second half of 2017 and the Spring Festival box office verification movie market that set a new historical record can be driven by high-quality content. In the next few years, high-quality movies and TV productions will be both valuable and marketable.

The company's management team is fully capable, rich in industry resources, and impressive film and television business strength. The core management of the company comes from the financial industry, the film and television industry, and the Internet. The division of powers and responsibilities is clear, and their abilities complement each other. Among them, Chairman Li Yunqing has worked in the capital market for many years and is currently a director of Ningbo Jutai Investment Management Co., Ltd.; General Manager Xi Xiaotang was the legal director of HuaTV Film and Television Investment Co., Ltd. and the general manager of Beijing Ruyi Xinxin Film Investment Co., Ltd., and is a senior talent in the domestic film and television industry; the other business leader, Mr. Cao Lining, is a well-known film producer and has served as the deputy director of Beijing TV's Capital Film and Television Center, and President of the Ruyi Film and Television Division, and has participated in positions including “Incursion” and “Beiping Incursion”, “Beiping Dive”, “Beiping Dive”, “Beiping Dive”, “Beiping Dive”, “Beiping Dive” Planned many TV dramas such as “No War” Produced. With the accumulation of core personnel in the industry and the TV series “The Life of a Nation”, “Ordinary Years”, “The Frontier of Love” and “Battle Kunlun”, and the film works “Three Lives Three, Ten Mile Peach Blossoms”, “The Sewing Machine Band”, etc., it has formed a virtuous cycle of business. Among the collection of works disclosed in the company's 2017 annual report, there is no shortage of high-production, actor-level works with characteristics of leading works, and the future is very impressive.

Based on content, it is not limited to that; it aims to create an entertainment consumer platform-level company with “influence +”. Currently, the company's new business is mainly film and television, including movies and TV series. In the future, it will gradually be deployed to more sustainable and profitable departments based on the upstream and downstream linkages of the industry.

Content manufacturing can accumulate huge traffic and create “influence” in a short period of time, but profits are relatively unsteady. Therefore, we need to use the influence of content to gradually expand upstream elements on the one hand, and expand downstream channels, consumer goods and other fields on the other, to create “influence +” entertainment consumption platform-level companies.

Investment suggestions: The operation of Jixiang Co., Ltd. remains driven by a dual business. On the one hand, it continues to consolidate the operation of the molybdenum industry; on the other hand, it increases its business expansion in the entertainment sector. The company adjusted its business strategy, divested part of its loss-making business from its original business, and reversed its losses; with precise positioning and deep industry accumulation, the film and television business that came out in 2016 confirmed the revenue of two high-grossing movies and four high-quality TV series in 2017. The currently disclosed project reserves for the next two years are rich and high-quality, and will and ability have become a first-class force in the film and television industry. In the next three years, it is expected that the growth rate of the original main business, molybdenum industry, will meet the industry's consistent level, maintain revenue growth of around 5% and gross margin level of 6%, which is the same as the previous two years. The sharp increase in performance mainly comes from the continuous confirmation of film and television business projects. At the same time, the gross margin of the film and television business in 2017 was close to 47%, mainly due to the high quality of the company's investment projects and good returns. The company's current product line is expected to maintain a high gross profit level of close to 50%. Film and television accounted for 70% of the net profit structure in 2017. It is expected that in the next three years this ratio will reach 80% or more, and the company will rank among the leading content companies. In summary, we expect the net profit of listed companies preparing for the exam in 2018-2020 to be 500 million yuan, 566 million yuan, and 655 million yuan respectively, corresponding to EPS of 0.91 yuan, 1.03 yuan, and 1.20 yuan, and corresponding PE of 21.6, 19.0, and 16.5 times. Based on initial coverage, referring to the reasonable valuation level of high-quality film and television content companies, they were given 25 times PE in 2018, corresponding to the target price of 22.75 yuan, and given a “buy-A” rating.

Risk warning: Traditional businesses are not operating well, and some film and television projects fall short of expectations.