First quarter results: Liberal Arts's quarterly revenue was 220 million yuan, an increase of 48.3% over the previous year. The increase is mainly due to the increase in paying users: the number of paying users in the first quarter was 1,068,000, an increase of 99.3% over the previous year (mainly driven by the growth of mobile users). The company's gross profit was 133 million yuan, up 41.4% year on year; non-IFRS profit was 71.8 million yuan, up 40.9% year on year; IFRS profit was 62.2 million yuan, up 55.6% year on year. Revenue and profit completed 23% and 25% of our full-year forecasts, respectively, in line with expectations.

Mobile gaming is the focus of the business, and the domestic market has achieved rapid growth: in the first quarter, Boya mobile game revenue officially surpassed PC revenue, reaching 110 million yuan, an increase of about 198.9% over the previous year, accounting for 50.3% of revenue. Even in a fiercely competitive environment, the company actively expanded in major domestic application distribution channels (such as pea clips), mobile phone pre-installed channels, and operator channels, resulting in rapid domestic business growth of 95.6% over the same period last year. The company aims to achieve 40% of domestic revenue in 14 years. Overseas markets continued to maintain steady growth (up about 30% year over year).

Keep the target price of HK$13 unchanged, buy rating: The target price corresponds to a 14-year PEG value of 0.85, based on our assumption that the company made a profit CAGR of 31.85% in 14-17. Even if the capital market's expectations for Internet stocks have cooled down recently, we are still optimistic about the company's stock price increase for the following reasons: (1) it has good performance support; (2) the business has strong sustainability and growth predictability; and (3) considering the future growth space of the business, the current stock price is at an undervalued level (PEG<1).