Revenue growth in 2Q15 resumed month-on-month, but gross margin continued to decline Blue Port Interactive announced 2Q15 results. Quarterly revenue fell 3% year on year and up 65% month on month. “One Hundred Thousand Bad Jokes” contributed 104 million yuan in revenue to the company in 2Q15, while the company's traditional “Four Swords” revenue remained stable, down only 6% month-on-month (1Q15:40%). We believe that the month-on-month increase in 2Q15 revenue was mainly due to the low off-season base of game revenue in the first quarter, while the slight year-on-year decline was due to the continued decline in revenue from original games, while there were fewer new game schedules during the same period. At the same time, we also noticed that the company's gross margin declined by 1,800 bps year-on/month-on-month, respectively. The main reasons include 1) “100,000 cold” games require revenue sharing among IP owners and development teams, which lowered the overall gross profit margin; 2) the game agency distribution business had lower gross margins than self-developed games due to the need to share with developers. We believe that with the launch of popular IP-based mobile games and the expansion of the agent distribution business, there is still a possibility that the company's overall gross profit level will decline. Furthermore, in 2Q15, the company confirmed a one-time income of RMB 64.08 million due to Xingmei shares. Excluding this influence, the company's operating profit and non-GAAP net profit fell 63%/79% year-on-year respectively to initial success. Subsequent works are still worth looking forward to “One Hundred Thousand Bad Jokes” as a new product launched by Blue Port to test the waters of Pan-Entertainment and integrate popular IPs, bringing the company a good brand image and a more loyal user base. “One Hundred Thousand Cold” achieved a peak DAU of 1.42 million and a higher user retention rate and player activity than the average for similar games since its launch. Although “One Hundred Thousand Cold” did not bring significant revenue or profit growth to the company overall in 2Q15, we believe that with 1) the company's accumulation of more IP resources and loyal paying players through the Pan-Entertainment strategy; 2) the company's subsequent accumulation of relevant experience in IP promotion and operation, and 3) the company's subsequent masterpieces (The Legend of Zhen Yue, The Legend of the White Hair Witch, and The Battle of Shushan, etc.) go public and contribute potential incremental revenue, Blue Port is expected to achieve even better performance in 2H15. Valuation and ratings We believe the key factors for Blue Port's future success are its pan-entertainment strategy and player and user ecosystem built around popular IP resources, and its gradual penetration into other commercial fields such as film, television, animation, and variety shows through investment and strategic cooperation. Currently, the company's stock price corresponds to 12.7x2015E P/E, which is similar to the industry average of 12.8x 2015E P/E. We will continue to monitor the promotion progress and specific schedule of the company's new products, adjust profit forecasts and review target prices after receiving more quantitative data.