We communicated by telephone after the company released the interim results of 1H21. Both revenue and net profit fell-14 per cent and 94 per cent year-on-year, as (I) several old games were terminated, while the commercialization of new games will be in fiscal year 2022 or later; (ii) R & D costs increased by 45.4 per cent year-on-year. MAU/MPU/ARPPU also reflects the business adjustment, down 2.8% from the same period last year, 6.5% and 5.9% from the same period last year. Although the interim results are not satisfactory, we believe that business adjustment will be conducive to the long-term development of the company.

The old games are off the shelves but the new games are rich-as the company gradually shifts its focus to three anti-puzzle games and high-quality moderate and heavy mobile games, several games that do not conform to the strategy have been terminated on 1H21. We estimate that a total of about 20 games will be eliminated in FY21, and the downward trend of its key operating indicators (MAU/MPU/ARPPU) will continue in the second half of the year.

The company launched Little Animal Star and Glory all-Star in the second quarter of 2021, and both games are currently focused on user growth. Registered users rose to 3.5 million in August 2021 (compared with about 2 million in July 2021), and their score remained at 8.7 after the launch of Tap Tap. Other games shown in the table are expected to be released soon. Therefore, we expect R & D and marketing expenses to continue to increase in the second half of the year.

SaaS and offline stores will be the next growth points-although these two market segments account for only 3.1% of 1H21's revenue, they both show rapid growth (SaaS segment / offline stores: 36% up 419% year-on-year).

The company 1H21 opened 10 offline stores, with the goal of opening 20 offline stores by 2021 (previous guidance: 30 stores by 2021).

Valuation-We have lowered our revenue forecast for fiscal 22 to RMB 2.5738 billion / 3.4401 billion to reflect the impact of the elimination of old games while the new games have not yet been commercialized. We offer a fair value of HK $5.50 based on a price-to-earnings ratio of 18 times FY22E to reflect the better prospects for self-developed games and the growth potential of its SaaS business and offline stores. (