Huangshi Group is a leading dairy company in the southwest region. In recent years, it has been involved in the film and television media and information service industries, and has become a comprehensive listed company integrating the dairy industry, media, and information industries. In terms of dairy products, the company's industrial chain is perfect, and it has both upstream and downstream enterprises. Currently, the potential demand in the domestic dairy industry is high, and the company's dairy products performance is steady and promising; in the era of big data, the information service industry has broad prospects. The company is taking advantage of the opportunity to acquire information service companies and develop rapid performance growth in the information service field, which has become a new driving factor for the company's performance growth.

The company's performance is steady: (1) As of March 2019, the actual controller, Wong Ka-di, held 31.40% of the shares, and Orient Securities held 6.97% of the shares, making it the second largest shareholder of the company. The shareholding structure is relatively stable. (2) Regional leader in dairy products industry, with steady improvement in performance. Revenue increased from 411 million yuan in 2010 to 2,446 million yuan in 2016, fell to 2,367 million yuan in 2017, with an average compound annual growth rate of 28.41%. The revenue for Q1-Q3 in 2018 was 1,615 billion yuan, an increase of 6.47% over the previous year. Net profit from 57 million yuan in 2010 to 291 million yuan in 2016, with an average compound annual growth rate of 31.22%, net profit of Gimu fell to 57 million yuan in 2017, and -44 million yuan in Q1-Q3 2018.

The prospects for dairy products are broad: (1) China's consumption of dairy products is below the average of developing countries. In 2017, the country's per capita consumption of dairy products was 36.9 kilograms of fresh milk, 1/2 of the Asian average, 1/3 of the world average, 1/10 of the developed country average, and about 40 kilograms lower than the average of developing countries. As the diet structure of our population changes and income levels rise, consumption of dairy products will further increase. (2) The consumption of dairy products in the four provinces of Guangxi, Yunnan, Hunan and Guizhou, which are the main markets of the company's dairy products, falls short of the national level. Consumption of dairy products in Guangxi, Yunnan, Hunan, and Guizhou is still at a low level compared to the national average, but currently the per capita GDP growth rate in Guizhou Province is higher than the national level, and Yunnan's per capita GDP growth rate is basically the same as the average. Although the per capita GDP growth rate in Guangxi and Hunan is below average, it still maintains relatively rapid growth, and there is huge room for dairy products development in the company's main market regions.

Driven by Huangshi Group's growth: (1) Dairy main business: Upstream, middle and downstream enterprises have improved, and production capacity is still increasing. The revenue of dairy products increased from 816 million yuan in 2013 to 1,199 million yuan in 2017, with a compound annual growth rate of 10.09%. In 2018, the South China Dairy Factory was officially completed and put into use, which can increase production capacity by 200,000 tons per year; the Zunyi Dairy Factory, which was also prepared for construction in the same year, continues to expand its dairy industry landscape. (2) Film and television media: develop quality products and reduce integration. The revenue of cultural media increased from 04 million yuan in 2013 to 749 million yuan in 2017, with an average compound annual growth rate of 369.91%. However, due to the increase in film and television copyright purchase costs and policy influence in the past two years, the company is gradually weakening the film and television media business and achieving contraction and integration of the company's media business. (3) Information services: Active layout to cultivate new performance growth points. In the era of big data, the information service business has broad prospects. Huangshi Group is involved in information service companies through the acquisition of companies. In 2015, revenue from the information services sector was 18 million yuan, and in 2017, revenue from the information services sector reached 224 million yuan, accounting for 9.45% of revenue. During 2015-2017, the average compound annual revenue growth rate of the information services sector reached 231.73%, with huge growth potential.

Investment advice: We expect the company's revenue in 2019-2020 to be 2,651 million yuan and 3,032 billion yuan, up 13.95% and 14.36% respectively; net profit attributable to the parent company in 2019-2020 will be 85 million yuan and 107 million yuan respectively, with year-on-year increases of 113.68% and 26.42%, EPS is 0.10 yuan/share and 0.13 yuan/share, respectively, and corresponding PE is 46.4x and 36.7x respectively. The corresponding PE is 46.4x and 36.7x, respectively. For the first time covered, the company was given an “increase in holding” rating.

Risk warning: Film and television copyright fees have risen; residents' consumption potential for dairy products is difficult to release in a short period of time; the goodwill of subsidiaries in the cultural sector has declined.