In the gaming sector, the company used mergers and acquisitions (216 million yuan to obtain 72% of Hainan Adventure's shares, merged in June 2018, and achieved 100% ownership) and investment (375 million yuan obtained 25% of the shares of 499 Tour) to enhance distribution capacity and increase investment in H5 games and mini-program games; Sijiuyou reserves well-known IPs from various national comics, the game business supplements the company's revenue, excluding goodwill factors, and the company's net profit is 200 million yuan, an increase of 49% over the previous year. In 2018, the company invested in 49 Games with 375 million yuan. 49 Games is mainly engaged in independent mobile game operation, channel distribution, H5 independent operation, etc. The total revenue of its mobile game “Huluwa” exceeded 500 million yuan in 2017, and the peak monthly recharge flow exceeded 0.6 billion yuan. It is also an example of the monetization of classic Guoman IP in 2017. It is also an example of the monetization of classic Guoman IP in 2017. At the same time, 49 Games reserves classic Guomanshi IPs such as “Haunting Tiangong” and “Sheriff Black Cat”, which can be expected to be monetized.

In 2018, the company's total revenue was 1,126 million yuan, an increase of 20.28% over the previous year, of which game revenue was 689 million yuan (a year-on-year increase of 37.2%, accounting for 61% of revenue, mainly due to the Hainan Adventure Consolidated Report). It operates 86 game products. Self-developed games such as “Crouching Tiger, Hidden Dragon”, “Fengyun World OL”, “World of Fury Rekindled”, and “King of the Tower King” has a monthly flow of over 0.3 billion yuan in domestic “The Empire of Great Qin”, and the monthly flow of “The Battle of the Kingdom Is Coming” from overseas reaches tens of millions of dollars.

In terms of profit, under the influence of the game policy in 2018, the company actually achieved net profit of 200 million yuan to the mother's net profit of 200 million yuan (an increase of 49% over the previous year) for the goodwill generated by the Mergers and Acquisitions of the Magical Era of Goodwill and the long-term equity investment of investment in decisive shares. A total of 1,286 million yuan brought the net profit of the mother to the mother. If this influencing factor is excluded, the company actually obtained net profit of 200 million yuan to the mother (49% increase over the previous year).

The book distribution section is speeding up the “Belt and Road” cultural outreach strategy. Renmin Tianzhou was one of the first two companies to obtain special foreign publishing rights. In 2018, Renmin Tianzhou received strategic participation from China Children's Press and Publishing Corporation. In 2018, the company responded positively to the new teaching aid policy, developed markets outside the province and new types of teaching aids. The college entrance examination teaching aid product “Hengzhong Same Volume”, created with Hengshui Middle School, sold more than 4,000 schools, benefiting nearly 3 million third-year high school students. Sales increased steadily over the previous year; the People's Education Press authorized the cooperation project “New Curriculum Simultaneous Teaching Design”, which is expected to be launched in the second half of 2019; public book publishing and distribution revenue in 2018 was 436 million yuan (up 0.7% year-on-year, accounting for 38.8% of total revenue)

In Education Publishing, companies are actively transforming education technology and services. In terms of education services, the company owns Hunan Tianzhou Classroom Education Technology Co., Ltd., Hunan Tianzhou Innovative Intelligent Technology Co., Ltd. Tianzhou Innovation and Technology has signed agreements with dozens of primary and secondary schools in and outside the province to provide modern digital education services such as artificial intelligence; in terms of education publishing, the company has begun to superimpose “soft services” and launch personalized education service products such as digital teaching resource platforms, micro-courses, online tutoring; in the field of research and study tours, the company has cooperated deeply with dozens of domestic and international organizations, including Peking University and the Toronto Public Education Bureau of Canada. This segment began to gain strength in 2019, waiting for its performance.

Profit forecasting and investment ratings: First coverage, rating companies that increased their holdings were given to deep-dive into gaming through mergers and acquisitions. At the same time, the game business also contributed better to the company's operating income, but mobile game costs continued to rise. The gross margins of the company's book publishing and mobile games in 2018 were 31.59%/43.11%, respectively (gross margin fell 2.58 percentage points and 26.21 percentage points year-on-year respectively). The company is actively laying out the education service sector to find new driving points for performance growth.

In 2018, the company prepared 1,155 billion yuan for the magical era of mergers and acquisitions and the goodwill generated by the people. After 2019, the factors that influence goodwill on performance weakened, and the company moved forward lightly. The subsidiary Hainan Adventure (performance test preparation) expects net profit of no less than 30 million yuan in 2018, and the target company's net profit growth rate of no less than 25% for each year thereafter, that is, no less than 37.5 million yuan and 468.75 million yuan in 2019-2020. We expect the company's net profit to be 216 million yuan/242 million yuan/273 million yuan in 2019-2021. The corresponding eps will be 0.26 yuan/0.29 yuan/0.32 yuan respectively, and the latest PE will be 18.7/16.7/14.8 times respectively. The first coverage was given, ratings were given to increase holdings, and wait for the company's new business, education technology and services to bring performance flexibility.

Risk warning: investment, merger and acquisition integration risk; risk of performance falling short of expectations; risk of impairment of goodwill; risk of talent introduction and loss; education policy risk; risk of intellectual property infringement or infringement; risk of homogenization of game content; technical risk; risk of macroeconomic fluctuations.