Key points of investment:

Company announcement: The company signed a “Strategic Cooperation Agreement” with Poly Property Development Co., Ltd. and Zhuhai Helle Education Co., Ltd. to jointly promote the popularization of music culture education by utilizing the resource advantages of all parties to jointly carry out art training and musical instrument sales and host art activities.

Wale Education is a national education enterprise focusing on art education and early childhood education under Poly Properties. It has excellent customers and channel resources. China's 55 cities have 8 youth palaces, 28 kindergartens, international schools, etc., and will continue to establish various educational institutions in the future, which has great advantages in education-related resources and channels. The company's collaboration with Waraku Education will mainly include joint establishment, operation, and development of related art courses in kindergartens and youth courts. Furthermore, Poly Property is a leading comprehensive property management company in the country. It undertakes a large number of high-end property management projects in 151 cities across the country, and there are many potential Pearl River Piano customers living in the community. After cooperation between the two parties, Pearl River Piano can promote and promote the training courses carried out with Heke Education in all Poly Property facilities, further popularizing music and art education in China.

The two sides jointly used their resource advantages to set up art education community stores. In the future, the company's musical instrument sales business is expected to continue to grow rapidly and gradually expand the cultural industry sector. In the future, the two sides will cooperate to set up art education community stores. Poly Property will provide the space for the community store and related supporting facilities to support and sell Pearl River piano products; the company will provide teaching instruments, courses, etc. for the community store. After this cooperation, the company's main musical instrument sales business will improve, transform existing property channels into channels for promotion and sales, and also enhance the quality of communities under Poly Properties. Furthermore, the two sides are also expected to jointly host various arts and culture events such as art competitions, concerts, etc., to enhance the popularity and influence of the two sides, as well as the musical and cultural literacy of the Chinese people.

The art education sector continues to invest, promote the brand system to enter the whole country, and achieve an integrated ecosystem. Through industrial operation and capital operation, the company accelerates the development of the art education industry and promotes network construction. The direct-run stores Beijing Art House, Fuzhou flagship store, Jinan Central Store, and direct stores in Guangzhou, Foshan and other places have been opened and operated, creating a window for group services and cultural and artistic activities, and realizing an integrated ecosystem of musical instruments, education, online and offline multi-channel and Internet platforms. The company hosts national music contests for young people, universities, and the elderly, corresponding to customer groups of different age groups, and established differentiated and hierarchical personalized consumption matrices. Pearl River Hainuo's smart instruments and digital art education course products have also been continuously upgraded (such as the new version of Falling in Love with the Keyboard, Falling in Love with the Ukulele Course, etc.), hardware services have been continuously optimized, and training services have been improved. In the first half of 2018, more than 200 Pearl River Piano Art Classrooms were developed, with partners covering 626.

The main business structure was optimized, and the acquisition of Schimmel improved the brand matrix. On the industry side, global production of traditional pianos has basically stabilized at around 500,000 units per year, and demand for high-end pianos is on the rise. 1) Building a differentiated product system: The company has built a brand system with strong international competitiveness in high, medium and popular grades, comprehensively promoted the Schimmel project and domestic marketing network, and continuously optimized the product structure. Currently, it has more than 300 product models, and launched no less than 30 new categories every year. 2) Sales model upgrades promote sales growth: The company has more than 500 terminal outlets and continues to expand sales channels. It has carried out O2O and B2C e-commerce models and Schimmel resource integration on platforms such as Tmall and Jingdong. All channels have maintained a relatively rapid growth rate and continue to maintain the number one position in the global piano production and sales scale. 3) Deepening the development of domestic and overseas channels: the international market is centered on Asia, Europe and the United States, with more than 200 sales and service outlets spread across more than 100 countries and regions; the company's domestic market share has reached more than 35%, and the global market share has reached more than 25%.

Joining hands with mature properties and education companies to jointly promote music education and sales of musical instruments, focusing on the Internet+ art education and value service system; the main product structure continues to be optimized, and high-end piano brands set sail. Guangzhou's state-owned assets reform is a scarce target; it is determined to increase efforts to strengthen the transformation and upgrading of cultural services. We maintain the profit forecast of the company's 2018-2020 EPS of 0.15 yuan, 0.17 yuan and 0.20 yuan. The current stock price (6.15 yuan) corresponds to the 2018-2020 PE of 41 times, 36 times and 31 times. We are optimistic about the development direction of the company's long-term comprehensive layout of high-end musical instrument manufacturing, music education, cultural finance and media industries, and work with property and education enterprises to further accelerate the promotion of the cultural industry and maintain the increase in holdings.