Key points of investment:

Maintain the “increase in holdings” rating and lower the target price to 59.4 yuan. Considering the new IDFA policy and ByteDance 21Q2 regarding the increase in e-commerce traffic distribution. The 2021-2023 EPS was lowered to 2.97/4.24/5.37 yuan (previous value was 4.05/5.59/7.78 yuan), the company was given a 2021 20XPE valuation. The target market value was lowered to 9.62 billion yuan, and the target price was lowered to 59.4 yuan (previous value was 90.7 yuan) to maintain the “increase in holdings” rating.

Event: The company's 2021H1 revenue increased 80% year-on-year to 929 million yuan. The net profit of Guimo increased 344% year on year to 200 million yuan, and net profit after deduction of non-return mother increased 376% year on year to 199 million yuan.

The performance fell short of expectations, and I am optimistic that we will still enjoy industry dividends in the future. The company divested its forging business in August 2020 and successfully transformed, focusing on the Internet advertising business. The company's 2021H1 Internet marketing revenue was 799 million yuan, an increase of 112% over the previous year. Among them, the game category accounted for the largest share of advertisers, contributing 461 million yuan, accounting for 50%. Due to the new IDFA policy and ByteDance 21Q2's increase in e-commerce traffic distribution, 21Q2's net profit was 50 million yuan, lower than market expectations. Mobile advertising bucked the trend in 2020. Despite a decrease in budget during the first half of the year and a 70% increase in mobile advertising campaigns, we are still optimistic about future traffic dividends for Byte and Kuaishou Second Ring Road.

Optimistic about the company's ability to industrialize casual games, customer resources are of high quality. Hippo Games, a subsidiary of the company, is deeply involved in the field of casual games. The product range is rich and iteration is rapid, and we look forward to the development of new products in the future. In its long-term operation, the company has accumulated a large number of large, high-quality customers such as Baidu, Xiaomi, ByteDance, Kuaishou, Mobvisita, etc.

Risk warning: Internet advertising expansion falls short of expectations, and new product development and operation falls short of expectations.