Incidents: The company released its performance report for the first half of the year. During the reporting period, net profit attributable to owners of the parent company was 33.88 million yuan, a decrease of 9.1% over the same period last year; realized total revenue was 82.64 million yuan, an increase of 15.6% over the same period last year; and basic earnings per share was 0.32 yuan. Comment: 1. Revenue has returned to normal growth, and increased expenses have dragged down net profit. In the first half of the year, the gross margin of the company's main business calls was stable. Since most provinces have already opened related businesses, its growth has returned to the normalized range. The total number of member users reached 2.69 million, a slight increase of 210,000 over the beginning of the year. With the popularity of smart phones, we believe that the growth rate of telephone contacts will continue to be under pressure, but from the perspective of the company's operations, this is still a rare “cash cow” product. In addition, the divergence between net profit trends and revenue is mainly due to: 1) a sharp increase in sales expenses due to intensive promotion of new products such as Phone+; 2) rising R&D expenses and remuneration driving up management expenses; and 3) an increase in non-operating expenses. We believe that the promotion and development of new mobile Internet products has been the company's strategic foothold for the past two years, and that maintaining a high cost rate in the future is a probable event. 2. The acquisition of “Blue Port” was blocked, and the logic of the “cock-shelling business” flourishing was not changed. Due to reasons such as failure to negotiate the purchase price and differences of opinion between Blue Port investors and founders, the company recently announced that it would abandon the acquisition of “Blue Port Online,” thus erasing the current popular mobile game product “King's Sword.” GEM companies with excellent history will inevitably encounter turbulence in the process of external expansion. The blue cursor (300058) previously terminated the acquisition of “timeshare media” due to issues such as extended performance commitment periods, etc., but this did not affect their subsequent marriage with assets of the same quality as “Tibetan bloggers.” This incident shows that Langma intends to lay out mobile value-added products with strong monetization capabilities, such as mobile games, through external mergers and acquisitions, and its selection of targets is also extremely strict. Taking Blue Port Online as an example, it is in the first group in both mobile games and page games, while the monthly turnover of celebrity mobile game products exceeds 40 million yuan. We believe that the growth strategy of Langma is based on a broad group of university students and young adults, and continues to supplement the product line to meet the differentiated content and mobile application needs of this group has not changed. However, considering that low- and middle-income groups are expected to become the main force for payment in the mobile Internet industry, the failure of this acquisition will not only not affect the company's medium- to long-term development, but will also strengthen its determination to expand into content fields such as games. In addition to subsequent mergers and acquisitions, two mobile games from the participating company NetYang Digital Entertainment will also enter the Apple Store in the second half of the year and contribute revenue. 3. New products are being commercialized one after another, and we look forward to multi-platform collaboration. The company's R&D expenditure increased dramatically in the first half of the year, with a total investment of more than 22 million yuan (including capitalized development expenses). This shows that the company is adapting to the trend of iterating new mobile Internet products and speeding up the product development cycle. In terms of new product layout, the company is focusing on promoting the private social networking and instant messaging application Phone+ on smartphones. Unlike similar apps, the product has dug deep into users' private social networking needs. As of the end of June this year, the number of independent registered Phone+ users had exceeded 8 million. Meanwhile, the PC-based video show and multi-person video chat room “Hou My Network” has been put into trial operation after improving the anchor system and payment system. Referring to the revenue scale of the video chat room leader “9158” of nearly 600 million yuan in 2011, we think this business is expected to become another good business for “idle people.” Furthermore, the company established a joint venture with Guishi Culture to successfully obtain some TV program resources. It is hoped that in the future, deep interaction between mobile Internet applications and television media, cross-platform resource integration, and broad scope for innovation will be established. Therefore, we believe that the company is being laid out from multiple angles around the core requirement of new media and social networking. The current failure to contribute to performance is mainly due to the fact that new products have not yet begun to be commercialized, while “suffer first, then be sweet” is a common path of transformation in new media applications. Although the company's applications are functionally similar to popular products in the market (such as WeChat and YY Voice), we believe that in the future, mobile Internet products will also form a differentiated niche market, and the company's deep cultivation in regions and target user groups will help it form a differentiated competitive advantage. 4. Look at mobile connectivity from a different perspective: forget about disruptive innovation, focus on niche markets, and give it an “increase in holdings” rating. A different view from the market: Influenced by concepts such as “WeChat,” the current market's optimism about new media products generally revolves around the respect for “disruptive innovation,” yet we believe that in the era of accelerated informatization, the huge number of users will be divided into a large number of “niche markets,” and new media products will eventually become like products in the traditional sense, making it difficult to “summarize in one place.” Targeting segmented target groups, concentrating efforts to meet their unique needs, and finally promoting from regional markets to the whole country is expected to become a new trajectory for the growth of small-scale enterprises. And it's better to leave those “disruptive” innovations to the giants. We expect the company's EPS for 2013 and 2014 to be 0.81 and 1.03 yuan, respectively, corresponding price-earnings ratios: 65 times and 52 times (including user value already held on mobile devices but not monetized), giving the company an “increase in holdings” rating. 5. Risk warning: Telephone calls are facing delays in product development due to declining business revenue, failure to carry out effective mergers and acquisitions, and insufficient human capital.