The company forecasts a year-on-year decline in profit of 118.6% to 119.2% in 2018.

The company issued a performance forecast for 2018, predicting a net profit loss of 9.82-987 million yuan in 2018, down 118.6% and 119.2% compared with the same period last year, which is lower than our expectations.

Pay attention to the main points

Net profit loss is caused by impairment of assets, lower-than-expected film and reduced investment income. The company's provision for impairment of assets such as goodwill is the main reason for performance losses. At the same time, the company's two film and television masterpieces "the four Heavenly Kings of Di Renjie" and "Yunnan Worm Valley" grossed 610 million and 150 million at the box office in the second half of 2018, respectively. In addition, the company's non-recurrent profit and loss fell 68 per cent year-on-year to 226 million yuan as a result of investment gains from the sale of shares in Yinhan technology and palm fun technology in 2017 and only government subsidies in 2018.

The proportion of long-term equity investment is relatively high, and short-term funds are under pressure. The company has spent a lot of money on long-term equity investment in recent years. As of the third quarterly report, the long-term equity investment was 5 billion, accounting for 24.7% of the total assets, which was higher than the average of 7.4% of listed film and television companies, which affected the cash flow of the company's operating activities to a certain extent. Recently, the company's total 2.2 billion of the winning vote expires, in addition, the company has a short-term financing of 700 million in April, in the face of financial pressure, the company is through the pledge of credit, the introduction of war investment and other ways to alleviate.

There is still potential for long-term film and television and live entertainment business. Recently, the company signed a strategic cooperation agreement with BABA Pictures, and the company and related parties promised to complete the main control and release 10 cinema films within five years. Looking forward to 2019, the war movies "eight hundred" and "the Great wish" have entered the post-production stage, and the film tour linkage works "Onmyoji" and "Project 20, 000 miles" have also been launched. the company has also participated in investing in TV dramas such as the Treasure list of the Antiques Bureau, the judgment of the Glorious Age, and the Heart House Hunter. The diversified project reserve is expected to promote the continued growth of the main business.

Valuation and suggestion

Taking into account the impairment of goodwill and other factors, we reduced the 2018 return net profit by 153% to-985 million yuan, introduced the 2020 return net profit forecast of 819 million yuan for the first time, and lowered the target price by 25 percent to 4.3 yuan, which corresponds to a price-to-earnings ratio of 16 times in 2019. Maintain a neutral rating.

Risk

Regulatory policies tightened, box office growth was lower than expected, and the performance of investment targets was lower than expected.