Incident On May 5, 2017, the company announced that it signed a “Shenzhen Shouxin Game Technology Co., Ltd. equity transfer framework agreement” with Yingtan Qianxi Investment Management Co., Ltd. and Shenzhen Suoxin Brothers Investment Partnership. The company plans to use RMB 536 million to acquire 100% of the shares in the palm game jointly held by Yingtan Qianxi and Shuxin Brothers. The reviewed company has strong game development capabilities. Established in 2014, Shenzhen Hand Game Technology Co., Ltd. is a mobile online game service provider integrating game R&D, distribution and operation. Currently, it mainly operates chess and card mobile game products, such as “Hand Mahjong,” “Happy Play Mahjong,” and “Happy Play Mahjong,” and “Arcade Golden Toad Fishing with a Thousand Cannons Edition”. The actual controller and core team members of Hand Games have working backgrounds in well-known Internet companies such as China Mobile Games and Alibaba. The team has rich experience in mobile Internet product development, distribution and operation, and has good mobile Internet human resources, and strong overall game development capabilities. Payment methods promote equity bundling, and performance promises enhance the company's performance. 1) The company will pay 10% of the transfer deposit to the equity transferee within five working days after the shareholders' meeting is reviewed and approved by the shareholders' meeting. After completing the registration of equity transfer changes, the company will pay another 30% of the transfer amount to the transferee. At the same time, within 3 months after receiving the second transfer payment, the transferee must purchase the company's shares with RMB 30 million of 40% of the transfer amount already paid. The subsequent transfer payment company will pay 15%, 15%, 15%, and 15% of the equity transfer amount according to the performance of the transferee's 2017-2020 performance promises. The shares purchased by the transferee in accordance with the agreement will be unlocked at a ratio of 20%, 20%, 20%, and 40% of the results for each fiscal year 2017-2020 after the end of the gambling period. The payment method for this transaction will facilitate equity bundling between the company and the transferee, so that both parties to the transaction form a bond of interest, which is conducive to the fulfillment of performance promises. 2) Hand Heart Gaming shareholders promise that in 2017, 2018, 2019, and 2020, the net profit after deducting non-recurring profit and loss will not be less than RMB 50 million, 60 million yuan, 72 million yuan, and 86.4 million yuan, respectively. Compared with the company's net profit of 12.68 million yuan in 2016, if this acquisition is finally achieved, Hand Gaming's performance promise for the next 4 years will significantly increase the company's overall performance. The acquisition brought business collaboration to the next level, and the company's game development capabilities were brought to the next level. According to the “2016 China Game Industry Report”, the domestic mobile game market achieved revenue of 81.92 billion yuan in 2016, an increase of 59.20% over the previous year. The share of the mobile game market also surpassed client games (35.2%) for the first time, reaching 49.50%. Hand Gaming has strong mobile game development capabilities, which will encourage the company to supplement the complete mobile game distribution and operation team, achieve business collaboration between the two sides, and further enhance the company's profitability in lottery games and mobile games. At the same time, Hand Games will provide distribution and operation support for the company's original games, enhance the company's ability to monetize lotteries and games, and enhance the certainty of the company's future performance growth in a context where lottery industry policies have not yet been clarified. Risk factors: The rise in raw material prices and labor costs; the decline in lottery ticket sales; uncertainty about the certification and acquisition of lottery system and game R&D and consignment marketing qualifications; and the mergers and acquisitions of palm games and performance promises fell short of expectations. Profit forecasting and investment recommendations The company has a stable position in the lottery printing business, and has a complete layout in lottery systems, games, and paperless lottery sales. If this merger and acquisition is finally achieved, it will significantly enhance the company's game development capabilities and increase its performance in the next few years. Considering that the transaction still needs to pass due diligence and shareholders' meeting approval procedures, etc., there is some uncertainty. We maintain the company's 2017-2019 EPS forecast of 0.07/0.14/0.20 yuan/share (three-year CAGR 74.9%), corresponding PE score of 251/130/92 times, maintaining the company's “increase in holdings” rating.