Items:

The company released its results for the first half of 2017 KuaiBao: realized operating income of 291.287 million yuan (YoY108.65%) and returned to its mother net profit of 77.6546 million yuan (YoY 243.73%).

Comments:

The performance exceeded expectations and the company's business grew across the board. The company has achieved rapid growth in both revenue and profit, which once again confirms the judgment that the performance inflection point has come, and the company accelerates business upgrading around the mobile Internet service integrator strategy. The company's performance exceeded our expectations in the first half of 2017, mainly from three aspects: (1) the mobile game market performed well, with the introduction of "Simulation City: I am the Mayor" in the first half of the year, and boutique game agents in the next city; (2) the business scale of virtual operators was further expanded, expanding traffic and SMS business except WiFi; and (3) the investment promotion work of Nanjing Mobile Internet Industrial Park was progressing smoothly, with an occupancy rate of 80%. In addition, the equity transfer of Hangzhou holding League was completed in the second quarter, and the investment income increased by about 12 million yuan during the reporting period.

Games and industry applications are expected to continue to exceed expectations. (1) the game agency model is advancing steadily. In the second half of the year, the company plans to introduce 3 to 5 overseas boutique games, and the total number of games to be operated by the end of the year is expected to reach 10, which is expected to become the core driving force for the company's continued growth. The company adheres to the model of acting overseas products, superimposes the ability of local issuance and operation, and highlights the advantages of differentiation. (2) steady progress in industry application, with the company pooling WiFi access, traffic and SMS capabilities of three major operators, providing resale business of resources to B-end customers, superimposing Internet marketing services to increase added value; deeply ploughing aviation APP development and operation, signing a service agreement with AirAsia, except Sichuan Airlines and Hainan Airlines, to enhance opportunities for overseas aviation customers. (3) the lottery service is tentatively provided in accordance with the requirements of the policy, and the products are constantly polished and optimized internally at present, which is expected to bring additional contribution once the policy is opened.

Equity incentives are in place, and executives increase their holdings to show confidence. The company implemented the equity incentive plan in 2016 to bind the core team, covering the company's core management and business and technical backbones; the chairman, director and secretary of the board of directors respectively increased their holdings in the company, demonstrating their confidence in future development. Director Peng Wei plans to reduce his holdings of no more than 5 million shares. He learned through the interactive platform that he no longer holds a management position at the business level, and the reduction is more due to personal capital needs.

Risk factors: business growth falls short of expectations and extension falls short of expectations.

Maintain the "buy" rating: the company's business grows across the board, and its first-half performance exceeds our expectations. It is expected to continue to promote mobile games and industry applications throughout the year. If the policy opens up the lottery business, it will bring additional flexibility. Taking into account the stable growth of the company's existing business lines, the company raised the forecast of net profit from 2017 to 2019 to 1.54 shock 2.09 / 267 million yuan (the original forecast was 1.29 shock 1.78 / 226 million yuan), and the EPS after the corresponding deduction was 0.27 shock 0.37 shock 0.47 yuan (the original forecast was 0.50 shock 0.69 RMB 0.88 yuan), maintaining the target price of 13.6 yuan (excluding rights) and "buy" rating.