Items:

The company released its 2016 report, with an operating income of 394 million yuan, an increase of 103.32% over the same period last year, and a net profit of 79 million yuan, reversing losses over the same period last year. In this regard, our comments are as follows.

Comments:

The income has doubled. During the reporting period, the company continued to deepen and upgrade, and all business lines recovered, with operating income of 394 million yuan, an increase of 103.72% over the same period last year. Revenue growth mainly comes from mobile games and Internet industry application business: (1) targeted at high-quality IP boutique game publishers, reached a number of mobile game cooperation with international well-known mobile game production companies such as EA, Rivio, King, etc., with mobile game revenue of 81.6022 million yuan, an increase of 32.54% over the previous year. (2) continue to cooperate with the three giants of WiFi products, vigorously develop traffic management, focus on covering banks and Internet customers, and carry out enterprise short message service with games and other cooperative resources. The company integrates WiFi, traffic and short messages to provide basic application services in the Internet industry. (3) the North Latitude Mobile Internet Industrial Base was completed and accepted in 2015, with an occupancy rate of more than 70% and a rental income of 30.2435 million yuan.

The performance has reversed. The net profit belonging to shareholders of listed companies in 2016 was 78.83 million yuan, turning losses into profits compared with the same period last year. Business transformation has achieved initial results, and business gross profit margin and period expense rate have improved significantly:

(1) the gross profit margin in 2016 was 47.41%, an increase of 5.35PP over the same period last year, and the gross profit margin of mobile games was greatly improved. (2) compared with 2015, the rate of sales expenses and management expenses decreased significantly, and the positive effect of business carding and personnel integration on performance began to be reflected. (3) the team incentive is in place, and the company implements the equity incentive plan to bind the core team, covering the company's core management and business and technical backbone of 72 people.

It is expected that games and industry applications will continue to grow in the past 17 years, speeding up the extension layout. (1) the game agent model is advancing steadily, and the number of imported models is expected to exceed 10. The company adheres to the leisure game mode of acting well-known foreign manufacturers, superimposing the company's local issuance and operation capacity. It is expected that there will be a breakthrough in the quantity and effectiveness of introduction in 2017, and it is expected to exceed 10 models for the whole year. (2) expand the advantages of communication applications to strive for a larger share, aviation applications to expand domestic and foreign airlines, expand business model layout auxiliary income projects.

(3) accelerate the extension of layout. The company participated in the establishment of the Mobile Internet Industry Investment and M & A Fund, with an estimated total size of RMB 500 million, and was successfully selected into the Beijing High-tech Industry Development Fund Cooperation Agency. The company has actively laid out the Internet of things, artificial intelligence and other areas, has invested in drone application start-ups, and it is expected that the follow-up fund and Nanjing industrial base are expected to form a platform for investment incubation and extension.

Risk factors: business growth falls short of expectations and extension falls short of expectations.

Maintain the "buy" rating: revenue doubles and performance exceeds market expectations. The company is expected to continue to promote business upgrading and transformation, raising the company's EPS forecast for 2017-2018 to 0.50 yuan 0.69 yuan (the original forecast is 0.43 yuan 0.52 yuan), and adding a new EPS forecast for 2019 to 0.88 yuan. Taking into account the company's strong endogenous growth and extension expectations, the company will be given a 2017 60XPE, raising the target price to 30 yuan and maintaining the "buy" rating.