Event: The company released a semi-annual report. 2017H1 operating income was 387 million yuan, up 8.85% year on year; net profit attributable to shareholders of the parent company was 153 million yuan, up 71.84% year on year, net profit after deducting non-return net profit of 133 million yuan, up 51.07% year on year, basic earnings per share of 0.18 yuan/share, up 80% year on year. It is estimated that the net profit of the Q1-Q3 company will increase by 35%-85%, and the net profit of the parent will reach 212-291 million yuan. The core view is that the revenue of boutique dramas is impressive, and the decline in fees and interest rates during the period has driven high performance growth: the traditional toy business was completely divested in the first half of 2017, and profits were mainly composed of two major sectors: boutique dramas and games. The boutique drama business contributed 323 million dollars in revenue in the first half of the year, up 16.48% year on year, net profit of 118 million yuan, and the gross profit margin of the film and television business was 40.34%, down 5.04%; mainly due to the confirmation of TV sales revenue for the first season of “That Starry Sky, That Sea of Stars” and the second season of “That Starry Sky, That Sea” season 2 was broadcast on Hunan TV in February, and the second season is expected to be broadcast on Hunan TV and Internet platforms such as iQiyi and Sohu in the third quarter of this year. The revenue of the game business in the first half of the year was 62.72 million yuan, down 4.61% year on year, and contributed net profit of RMB 31.22 million (of which Fengyun Interactive contributed revenue of RMB 21.28 million and net profit of RMB 10.31 million), mainly due to the fact that the first half of the year was a low season for the company's game launch. The gross margin of the game business increased by 3.3% to 87.27% during this period. The company reserves many high-quality IPs and conducts game development and operation with IP as the core. The first wave focuses on the operation of two major IPs, “Lord of the Snow Hawk” and “Despicable Age”. Fengyun Interactive's core is building ARPG games and expanding the H5 game field. In the second half of the year, on the basis of operating the original game, the “Three Kingdoms” mobile game, the “Three Kingdoms” mobile game, the “Doulo Continent 2D” page game, “Despicable Age H5”, and “School Flower's Personal Master H5”, etc., will increase the performance of the game section. Due to the reduction in advertising expenses for Dream Star Life Park and the previous divestment of the toy business, the cost rate during the first half of the year fell to a record low of 10.83%, thereby increasing the level of profit margin and increasing performance space. At the same time, the investment income for the period was around 15 million. Downstream competition continues to increase the huge price space for quality products, and the company has sufficient reserves to embrace industry opportunities: the competitive pattern on the downstream channel side, especially video sites, is still undecided, high-quality content is still the core resource of competition, and the top quality players have full potential for dramatic growth. Dream Star Garden, a subsidiary of the company, is committed to creating quality romance dramas. It has long cooperated well with TV stations such as Hunan TV and Zhejiang TV, as well as video sites such as iQiyi and Youku, and is expected to benefit from profit margins brought by downstream competition with high-quality productions. Dream Star Garden binds well-known writers such as Tonghua and collaborates with 360 Literature to reserve a large amount of high-quality IP content resources. The second season of “That Starry Sky, That Sea” is expected to be broadcast on the stars in the second half of the year to bring further revenue confirmation; the third season of “That Starry Sky, That Sea” and “The King of Stars” are expected to launch in the second half of the year to reserve high-quality works; it is planned to invest 1.2 billion dollars in 4 TV series and 5 web series to increase the company's high-quality content production. We are optimistic about the company's high-quality IP production and distribution capabilities for a long time, and highlight the bargaining power of high-quality upstream producers in downstream competition. During the reporting period, the company invested 200 million yuan to hold 10% of Mancharo's shares. Dream Star Garden will carry out in-depth cooperation with Mandala in IP resources, project investment, film and television production and distribution, etc., and is expected to continue to strengthen the company's quality content production and distribution capabilities. Strengthen financing, strengthen capital protection, and the capital operation and investment sector continue to gain strength: during the reporting period, the company increased the scale of debt issuance from 600 million yuan to 900 million yuan. The 2017 corporate bond rating was AAA, and the current balance ratio is still low at 6.61%, which is expected to help the company use bond financing to increase its capital strength; at the same time, the company actively engages in equity financing, and plans to privately raise no more than 1.2 billion yuan to invest and produce TV dramas and web dramas to further strengthen the company's premium drama production and distribution capabilities and financial strength. In the future, it is expected that high-quality top quality dramas will continue to be exported. Currently, the company has sold 30% of Thumb Play's shares to Tianrun Digital Entertainment at a transaction consideration of 227 million yuan (if successful, cash consideration is 90.83 million yuan; the rest of the equity valuation companies will receive 10.44 million shares, and the company cost is 54 million yuan). If the matter proceeds smoothly, the company will achieve a book profit of 173 million yuan, with considerable investment value added. Currently, the acquisition plan related to Tianrun Data has been accepted by the Securities Regulatory Commission. There is still uncertainty about whether it can proceed. Profit forecast and valuation: Assuming that we do not consider the impact of issues such as debt issuance, non-public issuance, and Thumb Gaming equity transfers on profits, we expect the company to achieve net profit in 2017-2019 of 3.45, 4.31, and 497 million yuan, corresponding to EPS: 0.4, 0.5, and 0.58 yuan/share. The current stock price corresponding to the PE valuation is: 22.5×, 18×, 15.6×; we believe that the company's capital will continue to expand quality content production capacity, and Thumb Gaming equity transfers are also expected to bring performance elasticity. Current valuation The value is low. Combined with about 30 times the valuation of premium content companies, we gave the company a target price of 12 yuan/share, maintaining a highly recommended rating. Risk warning: game business is progressing slowly, movie and television revenue confirmation falls short of expectations, and extended mergers and acquisitions fall short of expectations