Main points of investment:

In 2014, it gradually extended from the main textile industry to the field of film and television culture. Jiangsu Lugang Culture Co., Ltd. was established in 1993 (changed from Jiangsu Lugang Technology Co., Ltd in June 2016). Its traditional main business is mainly engaged in the production and sales of all kinds of worsted, semi-worsted yarns and high-grade worsted fabrics. In 2014, in response to the national call to speed up the pace of transformation and upgrading, the company entered the film and television culture industry in November 2014 through the acquisition of Century Changlong Film and Television Co., Ltd. and the 51% stake in Zhejiang Tianyi Film and Television Co., Ltd., which was acquired in July 2015. From 2015 to 2016, the company's film and television drama performance continued to grow, including the imported film Sherlock and the co-production film return of the Great Saints; on TV series, the main drama "the Revolutionary career of Wang Dahua" and the co-production of the major revolutionary history drama "Marshal Peng Dehuai". Century long and Tianyi Film and Television have jointly created a series of high-quality films and TV dramas. A private offering of 1 billion yuan was completed in March 2016, mainly to support the development, shooting and distribution of Internet film and television projects, and the establishment of Lugang Internet Film and Television (Beijing) Co., Ltd., laying a solid foundation for the development of the film and television culture industry. In order to highlight the advantage of core competitiveness, the change of securities acronym was completed on June 15, 2016, and the company name was changed from "Jiangsu Lugang Science and Technology Co., Ltd." to "Jiangsu Lugang Culture Co., Ltd.", further clarifying the strategic objectives of the film and television culture industry.

51% of Tianyi Pictures was acquired in 2015, the remaining 49% was terminated in 2016, and is expected to continue in 2017. In July 2015, the company bought a 51% stake in Tianyi Pictures in cash. In 2015, Tianyi Film and Television was incorporated into the statements of listed companies, and the promised net profit from 2015 to 2017 was not less than 2500 yuan, 5500 yuan and 85 million yuan respectively. The acquisition of Tianyi Pictures strengthens the production and distribution capacity of the company's film and television business, and introduces new upstream and downstream resources of the film and television industry, which helps to enhance the comprehensive strength of the company's film and television business and improve the performance contribution of the company's film and television business sector. Since only one of the presale contracts for several new dramas originally scheduled to be signed in June 2016 has been completed, the acquisition of the remaining 49% stake in Tianyi Pictures and Television was terminated in July 2016. Tianyi Pictures achieved a net profit of 61.9482 million yuan in 2016, fulfilling its performance commitment of 55 million yuan in 2016, and the company is expected to continue to promote the remaining equity of Tianyi Pictures.

In the film and television culture industry, one kind of "large and beautiful" platform companies enjoy advantages, while the other kind of "small and beautiful" companies can also bring performance flexibility through boutiques. The company's super online drama will be produced with the help of video website big data analysis, IP adaptation, big creation, big investment and user participation, bind the original author and his screenwriter team, retain the essence of the original work, learn from Hollywood drama production experience, and introduce overseas technical teams to participate in the production. In terms of distribution channels, we will integrate the main domestic network platforms with traditional media, strengthen the distribution of new media on the basis of the company's original traditional media distribution experience, and create a "small and beautiful" flexible film and television culture company through fine products.

Profit forecast and investment rating: cover for the first time and give a buy rating. The net profit of the company's traditional main textile business was 12.21 million yuan, 45.9 million yuan and 68.28 million yuan respectively from 2013 to 2015, maintaining growth. In 2014, in response to the national call to speed up transformation and upgrading into the field of film and television culture.

We believe that in the cultural media sector, when the valuation is improved through cross-border mergers and acquisitions, the main business is generally at a loss, and there are most cases of dragging down the performance, and the traditional textile business of Lugang culture still maintains its profit contribution. through continuing to strengthen technological transformation to do a good job in textile business while speeding up transformation and upgrading. In terms of film and television culture, Century Dragon and Tianyi Film and Television have highlighted their ability to polish and control their professionalism and works through successful film and television works. The net profit generated by the film and television sector in 2017 is expected to account for about 70% of the net profit of all listed companies. From 2017 to 2019, regardless of the impact of textile and other traditional business on the net profit, we estimate that the net profit of film and television culture from 2017 to 2019 is 165 million yuan, 206 million yuan and 261 million yuan respectively, and the corresponding eps is 0.18,0.23,0.29 yuan respectively. The PE corresponding to the closing price on August 31 was 32.55x, 25.48x and 20.21x, respectively. If we consider traditional textile and other businesses, and based on the prudent principle, we predict that the impact of the acquisition of the remaining 49% stake in Tianyi Pictures and Television will not be taken into account, we estimate that the net profit in 2017-2019 is 260 million yuan, 372 million yuan and 528 million yuan respectively, and the corresponding PE is 0.29,0.42,0.59 yuan respectively. For the first time, the company's subsequent launch of "Cao Cao" and other dramas can bring both social and economic benefits, giving a buy rating.

Risk tips: Internet film and television project audit risk; acquisition of Tianyi film and television remaining 49% equity uncertainty risk; uncertainty risk of the impact of the traditional textile industry on company performance; film and TV drama project progress is not as expected risk; performance commitment is not up to expectations risk; lack of human resources risk; industry competition risk; management failure risk; industry regulatory risk; macroeconomic fluctuation risk.