1. Incident The company announced its 2016 semi-annual report: The company achieved operating income of 290 million yuan in the first half of 2016, an increase of 13.96% over the previous year, and net profit attributable to shareholders of listed companies of 9.8948 million yuan, an increase of 6.33% over the previous year. 2. Our analysis and judgment (1) Main business revenue growth was stable, and gross margin declined due to changes in promotion intensity and product structure. The company strengthened sales management in various channels and promoted steady revenue growth during the reporting period. The company achieved revenue of 290 million yuan in H1 in 2016, an increase of 13.96% over the previous year. The company continues to expand its direct management network, enhance the store image, and increase the user experience. On the franchise channel, increase cooperation methods to support franchisees. On the online channel, in addition to continuing to cooperate efficiently with existing online sales platforms, the company has established a vertical e-commerce sales platform and increased platform promotion efforts. During the reporting period, the company used online channels to cooperate with well-known animation IPs to create home textile derivatives loved by parents and children, and received good market feedback. Gross margin declined due to increased promotion of main products and changes in product structure. The gross profit margin of the company's H1 main business in 2016 was 38.01%, down 4.31pp over the same period. During the reporting period, sales revenue of high-margin products such as blankets and pillows declined, while revenue from gross profit products such as kits had a negative impact on gross margin. (2) Inventory accounts receivable remained stable. Affected by the increase in prepaid accounts, operating cash flow declined slightly, and the company's inventory and accounts receivable remained stable compared to the same period last year. Operating cash flow remained down 1.79% despite revenue growth, mainly due to a sharp increase in prepaid accounts. The amount of prepaid accounts was 476.5539 million yuan, an increase of 278.286 million yuan over the beginning of the period. This is an increase in prepaid raw material purchases during the reporting period. (3) The overall ability to control expenses is excellent. The financial expense ratio has increased due to a decrease in interest income. The company adheres to existing business ideas, improves internal management, improves talent development and improves the company's management efficiency through information-based construction projects, and controls the company's expense ratio. During the reporting period, the company's sales expenses were 61.0812 million yuan, up 1.64% year on year; management expenses were 35.3038 million yuan, up 0.17% year on year, which was relatively stable. Financial expenses amounted to RMB 0.64 million, up 101.26% year-on-year, due to a decrease in interest income. (4) The promotion of the IP Internet business has become a new profit growth point in the future. The company has established an HBDIY Internet platform focusing on DIY T-shirts. It is the first online personalized high-quality product ordering platform in China. , transforming a “well-known IP derivatives” operating service provider. The company's Internet vertical e-commerce business was progressing in an orderly manner during the reporting period. The HBDIY Internet platform has already been launched. In terms of well-known IP derivatives business, the company continued to promote cooperation with well-known IPs on the Internet, such as well-known IPs, star artists, music platforms, video platforms, gaming platforms, and two-dimensional platforms, and has already developed related derivatives business with some well-known IPs. The company's IP operation and free traffic monetization business have broad prospects. IP cooperation projects that have already been launched include Cherry Maruko and Garfield. As internationally renowned anime IPs, their derivatives can be favored by parents and children. Currently, cherry balls and the Garfield series of products have been updated one after another, with a rich variety of products, including sheets, duvet covers, pillows, etc. In addition, the company is currently negotiating cooperation with various other large IP derivatives. 3. Investment proposal The company's original home textile business operates steadily. At the same time, around the famous IP monetization logic, various apps and star traffic resources are introduced and integrated around the HBDIY platform to provide an overall solution for peripheral traffic monetization for famous IPs, create an HBDIY Internet platform, and transform into a “well-known IP derivative”. We believe that the company's strategy is fully in line with the trends of the times. The company is expected to replace the role of traditional derivatives manufacturers and dealers and share the traffic dividends brought by mobile Internet social networking platforms through derivative design and production and event planning and marketing promotion on the Internet. As this type of target, which is currently scarce in the A-share market, we continue to “recommend” it! 4. Risk Warning: Ip derivatives development and sales fall short of expectations