Investment Highlights Inc. recently released its 2016 annual report and financial report for the first quarter of 2017. According to the 2016 annual report, operating income was 3.59 billion yuan, up 51.4% year on year, net profit attributable to shareholders of listed companies was 180 million, up 50.6% year on year, net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 170 million yuan, up 56.4% year on year, and earnings per share were 0.08 yuan. The financial report for the first quarter of 2017 showed operating income of 640 million yuan, up 36.6% year on year, net profit attributable to shareholders of listed companies 9.09 million, up 20.3% year on year, net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss of 5.19 million yuan, down 9.3% year on year, and earnings per share of 0.01 yuan, which is basically in line with expectations. Company Profile The company originally focused on the production and sale of woolen yarn and high-grade worsted woolen fabrics. In November 2014, it entered the film and television culture industry through the acquisition of 100% of Century Changlong's shares, and in July 2015, it acquired 51% of Tianyi Film and Television's shares, and began to lay out the film and television sector. A fixed increase was completed in March 2016, raising 1 billion dollars to further strengthen the field of Internet movies and TV dramas. The largest shareholder is Mr. Qian Wenlong, holding 13.30% of the shares (1Q17). Investment Essentials 1. Focus on the field of premium movies and TV dramas, and have good industrial chain synergy: The company's core assets are Century Dragon and Tianyi Film and Television. Century Changlong specializes in the production and distribution of quality TV dramas and movies. Tianyi Film and Television is mainly engaged in film and television drama planning, production, distribution, and development of related derivative products. The combination of the two can achieve IP monetization and expansion. 2. The company's web drama production standards continue to improve, and it is expected to benefit from the explosion in the Chinese online video market: the company has produced a series of dramas with good reviews, such as “Tomb Raider Notes.” Furthermore, in July 2015, the company set up a wholly-owned subsidiary Lugang Internet to inject all relevant Internet video and television resources into the platform. The fixed increase was completed in March 2016, raising a total of 1 billion yuan, of which 700 million yuan was added to the Internet TV drama project. 3. Currently, the market average estimates that the company's net profit in 2017 and 2018 is $310 million and $220 million respectively. The current stock price corresponds to the average market estimates of 2017 PE20.0x and 2018 PE14.7x, so investors are advised to pay attention. The risk suggests that the process and extent of IP monetization is not as good as expected, and industry regulations are strict.