Main points of investment

Our point of view: the strong performance of the self-developed game "Shushan War period" in February and March led to the rapid growth of the company's revenue, and further increased the company's overall gross profit margin because its IOS revenue share was higher than that of other games in the past. We believe that the total flow of "Shushan War period" in Q1 is more than 100 million yuan, but because the duration of the use of virtual props varies from 30 to 90 days, there is a certain time difference between the final revenue recognition and the game flow. So only about half of Q1 is recognized as income. The performance of "Shushan War period" is lower than expected in April and May, and we expect its Q2 flow to be about 30 million and about 20 million in the second half of the year. At present, the progress of the new game is on schedule, and "Shushan", "Dawn Light", "King 2", "Sky 2" and offshore games will also be launched at the end of Q2 and Q3. We are optimistic about the company's follow-up new games and continue to maintain the original recommendation logic of short-term catalyst + long-term core competitiveness. Short-term catalysts include: 1) performance reversal; 2) launch of new games; 3) increase in gross profit margin; 4) delivery of Tomahawk F1; and 5) shooting of film and television works. The long-term core competitiveness lies in Langang's own strong content research and development capabilities and IP operation capabilities, as well as international and pan-entertainment layout and coordination.

Profit forecast and valuation: we forecast that the company's net profit for 2016, 2017 and 2018 will be 81.1 million yuan, 111 million yuan and 160 million yuan respectively. Maintain Blueport Interactive [Buy rating] with a 12-month target price of HK $6.00, corresponding to 20 times EPS in 2016.

Risk hint: sales of new games, film and television businesses and consoles may be lower than expected.