The main advantage reconstruction content is Wang Chuxin's film and television entertainment income of 3.656 billion yuan in 2018, accounting for 94% of revenue, an increase of 8.39% compared with the same period last year. The company made phased adjustments to its strategy in the second half of 2018, focusing on "movies + real scenes". Strengthen its core competitiveness. In terms of films, a number of projects reserved by the company are expected to be released one after another from the summer of 2019. Guan Hu's war blockbuster "eight hundred" has been scheduled for July 5, and Tian Yusheng's new film "Great wishes" has been scheduled for August 9. At the same time, Stephen Chow's new film "Mermaid 2" and the film "serving the God" (formerly known as "Onmyoji") based on phenomenal mobile games have been killed and entered the post-production stage. Lu Chuan's "twenty thousand miles plan" ("749th Bureau") has started filming. In addition to the stock of film and television works with its own flow, a number of films that the company cooperates with other directors have also entered the preparatory stage to reserve a talent matrix for directors and screenwriters for follow-up works.

The development of brand licensing and live entertainment sector is based on the development of the main film industry. In 2018, the company's revenue from brand licensing and live entertainment was 150 million yuan (accounting for 3.84% of the revenue), a decrease of 42% over the same period last year. Mainly due to the impact of the external market environment and the time lag in the implementation of the project, 2-3 projects are expected to open one after another in 2019, relying on the positive influence of the "Huayi Brothers" brand to gradually recover in 2019. And the film and television works gradually recognized by the market under the positive cycle, combined with local characteristics and culture to create a film and television tourism project covering major cities across the country is expected to be carried out smoothly.

Profit forecast and investment rating: coverage for the first time, the film and television industry experienced stress tests in 2018, and the company can still gather industry resources to develop the main industry after labor pain adjustment indirectly highlights its endogenous high-quality genes. The brand building of cultural enterprises needs products recognized by the market. We believe that "eight hundred" (about the four lines of warehouse defense during the Battle of Songhu in the early days of the Anti-Japanese War in 1937) is the first in Asia to use IMAX cameras to shoot works, which is expected to help the company return to the center of the film stage and bring flexibility to the company's film performance. In 2018, the company calculated the impairment loss of various assets of 1.382 billion yuan, of which the impairment loss of goodwill was 973 million yuan (mainly Zhejiang Changsheng, Huayu Xunke, Dongyang Meila and GDC Tech). In 2018, the company's goodwill decreased by 31% compared with the same period last year, and the subsequent goodwill impairment risk has been gradually released. In 2019, except for "eight hundred" in the main film industry, "Great wishes" directed by Tian Yusheng is expected to be released in August 2019. Superimposed on brand licensing and live entertainment, we estimate that the company's net profit from 2019 to 2021 will be 434 million yuan / 526 million yuan / 659 million yuan, corresponding to the latest PE of 31.6 times / 26.1 times / 20.8 times, respectively. As there is still uncertainty about the popular style of the film, it will be covered for the first time based on the principle of objectivity and prudence. The recent recognition and attention of the company's film and television works in the market has increased, and we are optimistic that the company still has the ability to produce content, waiting for the marginal improvement brought about by the re-launch of the main film industry.

Risk tips: macroeconomic risks; the risk of slowing down the growth of the film and TV series industry; the risk of piracy; the risk of content censorship; the seasonal risk of film and TV drama projects; the risk related to corporate bonds; the risk of policy and regulatory environment; the risk that offline real-world business is not as expected.