Key investment points The growth rate of performance is in line with expectations. In the first half of 2017, the company achieved operating income of 363 million yuan, an increase of 51.8% over the previous year; realized net profit of 110 million yuan, an increase of 52.40% over the previous year; and realized net profit withheld from the mother of 103 million yuan, an increase of 44.82% over the previous year. The company's performance growth rate is mainly due to Youai Network's consolidated performance and increased performance. The performance is in line with expectations. The game business continues to grow, and “Crouching Tiger, Hidden Dragon II” is worth looking forward to. During the reporting period, the company achieved mobile game business revenue of 234 million yuan, an increase of 149.03% over the previous year. Among them, Youai Network achieved net profit of 63.17,000 yuan, and Fantastic Times achieved net profit of 43.263 million yuan. In terms of products, self-developed games such as “Forgetting the Immortals”, “Crouching Tiger, Hidden Dragon”, “Fengyun World OL”, “King of Tower”, and “The Five Tigers” continued to contribute revenue and cash flow to the company. The new game “World Rekindled” released by Youai has a monthly turnover of about 10 million yuan; in addition, “Crouching Tiger, Hidden Dragon II”, which is distributed exclusively by Alibaba Games, will begin unabridged testing on August 16. In addition, the company has also stocked IP resources such as Fairy Sword Inn, Journey to the East, Love the Light, and Bailian Cheng Shen, which is expected to continue to contribute impetus to subsequent game business growth. It is planned to acquire 100% of Chujian Technology's shares, and “Qi Tian Zhan” is expected to gain strength. During the reporting period, the company announced that it intends to acquire the remaining 73% of the shares of Hatsumi Technology through non-public issuance of shares and cash payments. After the acquisition is completed, it will become a 100% subsidiary of the company, thus achieving full coverage of game development and distribution. Choumi Technology is a well-known game publisher in China. In 2016, Choujian Technology achieved revenue of 182 million yuan and net profit of 71.951 million yuan; in the first four months of 2017, it achieved operating income of 72.022 million yuan and net profit of 3.406 million yuan. In terms of games, it has successively run various games such as “Demon Slayer”, “Attack on the Three Kingdoms”, and “Sacred Sword Contract,” and “The Sacred Sword Contract.” It will be released in the second half of the year, so it's worth looking forward to. First Sight Technology promised to achieve net profit of no less than 140 million yuan, 170 million yuan, and 210 million yuan respectively from 2017 to 2019. Launched a repurchase program with the goal of becoming one of the top game developers in China. During the reporting period, the company launched a repurchase plan with a total scale of 200 million yuan. The repurchase price of shares was no more than 17.20 yuan/share. The implementation period was within 12 months of consideration by the shareholders' meeting. We believe that the company currently has high-quality developers such as Magic Era and Youai Network in the game industry chain. If the acquisition of the first technology is successful, it will have the entire game development and distribution industry chain layout. In the future, the company will continue to integrate its own R&D capabilities and industrial resources, continuously launch high-quality game works, and strive to become a first-class game developer in China. Risk warning. 1. Risk of failure in mergers, acquisitions and restructuring; 2. Risk of income volatility in individual projects; 3. Risk of failure to meet expectations in mergers and acquisitions integration. Profit forecasts and valuations. If the acquisition initially sees success in technology, the company will have the entire game industry chain layout. Without considering initial technology mergers and acquisitions, we lowered the company's 2017-2018 EPS forecast to 0.39/0.48 yuan (the original forecast was 0.69/0.82 yuan), and added the 2019 profit forecast to 0.57 yuan. The current price corresponding to 2017-19 PE is 32/26/22 times. Taking into account the valuation level of the game industry, investors are advised to actively pay attention to the progress of subsequent mergers and acquisitions and the flow trends of important works such as “Crouching Tiger, Hidden Dragon 2” and “Qi Tian Zhen”.