Key investment events: Tianzhou Culture released its 2017 semi-annual report. In the first half of the year, it achieved operating income of 363 million yuan, an increase of 51.75% over the previous year; realized net profit of 110 million yuan, an increase of 52.40% over the previous year; and realized net profit of 130 million yuan after deduction, an increase of 44.82% over the previous year. Among them, the book business achieved revenue of 129 million yuan, a year-on-year decrease of 11.32%; the game business achieved revenue of 234 million yuan, an increase of 149.03% over the previous year. The high growth in performance was mainly due to the acquisition of companies and mergers. The company achieved high growth in revenue and profit, mainly due to the merger and acquisition of Guangzhou Youai Network Technology Co., Ltd. and Renmin Jindian Science and Education Media Co., Ltd. and the addition of Renmin Jindian Science and Education Media Co., Ltd. Among them, 100% of Youai Network's shares have been included in the scope of the merger since September 1, 2016, and the 51% shares of Rendian have been included in the scope of the merger since June 1, 2016, so the overall revenue and profit base for the same period last year was small. The game business contributes most of the revenue and net profit. In terms of revenue, the share of the game business increased from 39% in the same period last year to 65% in the first half of this year. From the perspective of net profit, the net profit of Magic Times and Youai Network in the first half of 2017 was 43.2627 million yuan and 63.1375 million yuan respectively, making it the most important profit source for Tianzhou culture. The game business continues to grow, and it is expected that many new games will be launched in the second half of the year, which is worth looking forward to. The company has strong R&D and operation capabilities in the fields of ARPG, SLG, and card type mobile online games. As of the end of the reporting period, the company operated a total of 31 game products, including “Forgotten Immortals,” “Crouching Tiger, Hidden Dragon,” “The Five Tigers,” and “Age of Empires,” which were independently developed and operated, and maintained good sustainable profitability. “Fengyun Tianxia Rekindles”, a sequel to the recently launched “Fengyun Tianxia Online”. The game has an average monthly recharge flow of around 10 million yuan, and the market response has been good. The company has increased investment in product reserves and IP reserves. Nearly 10 games, such as “Crouching Tiger, Hidden Dragon II,” “The Rise of the Great Qin Empire,” “The Rise of the Qin Empire,” “National Horoscope,” “Legend of Fangshen Daji,” and “Journey to the West,” and “Tower Defense to the West,” will be launched in the second half of the year. Among them, the action martial arts 3D mobile game “Crouching Tiger, Hidden Dragon II”, distributed exclusively by Alibaba Games, will begin unabridged testing on August 16. In addition, the company has also stocked more than 10 popular IP resources, such as Sword of Fairy Inn, Journey to the East, Love of Light, Bailian Shing, Tianxing Anecdotes, and Genie. Currently, games with some IP resources are already in the development and launch stage. Increase game mergers and acquisitions to improve the layout of the entire game industry chain. In June 2017, the company acquired 12% of Chujian Technology's shares held by Fang Xiaoqi, the actual controller of Chujian Technology, and plans to acquire the remaining 73% of Chusumi Technology's shares through non-public issuance of shares and cash payments. If the acquisition is completed, the company will hold 100% of Choumi Technology's shares, and the company's mobile game distribution strength will be greatly enhanced, achieving good collaboration and resource advantages with the original high-quality R&D capabilities, and achieving the company's entire industry chain layout from game R&D, distribution to operation, creating new performance growth points and accelerating entry into the first tier of domestic mobile games. Focus on the three major sectors of education, pan-entertainment, and culture to accelerate industrial transformation and upgrading. Foreign investment and mergers, acquisitions, and restructuring are important means. (1) In the education sector, the company controlled Renmin Jindian, participated in the decisive shares of the “O2O Online Education Platform”, and established subsidiaries Zhongnan Tianzhou and Tianzhou Classroom. (2) The pan-entertainment sector acquires Magical Times and Youai Network, and invests in companies such as Chujian Technology and Galaxy Digital Entertainment. Currently, the company is actively promoting the acquisition of remaining shares in Chujian Technology and is in negotiations with another company to be acquired. (3) In the cultural sector, the company and the People's Publishing House jointly established People's Tianzhou to become one of the first two foreign special publishing companies in China, accelerating the international layout. Profit forecast and investment advice: Without considering the acquisition of remaining shares in technology for the time being, we predict that Tianzhou Culture will achieve revenue of 1,336 billion yuan, 1,467 million yuan, and 1,569 billion yuan respectively in 2017-2019, up 71.30%, 9.83%, and 6.99%; realized net profit of 398 million yuan, 459 million yuan, and 505 million yuan, with year-on-year increases of 63.44%, 15.19%, and 10.19%, corresponding to 2017-2019 EPS of 0.47 yuan, respectively. 0.54 yuan, 0.60 yuan. The target price is 14.1 yuan, maintaining an increase in holdings rating. Risk warning: 1) game flow falls short of expectations; 2) company transformation and development falls short of expectations; 3) subsequent integration of the company falls short of expectations; 4) market competition intensifies; 5) overall market risk appetite is declining.