Incident: The company released its 2017 semi-annual report.

Reviews:

Losses were within expectations, and the software system and system integration business shrank. 1) 2017H1 achieved revenue of 78.2866 million yuan, a decrease of 8.25% over the previous year; achieved a net profit loss of 19.3102 million yuan, a decrease of 563.66% from the previous year. The increase in profit loss was mainly due to the large investment of the new subsidiary Insight Technology and Fenteng Interactive; 2) Traditional business shrank, software system revenue was 5.8752 million yuan, a decrease of 57.39%, and system integration revenue was 47,3557 million yuan, a decrease of 30.01%; 3) Management expenses were 396.3646 million yuan, an increase of 36.92% over the same period last year.

Seek breakthroughs in the fields of digital TV VR and video games. 1) The company actively promoted the technology research and development and business implementation of “VR+ Radio and Television”, and carried out VR pilot activities through cooperation with five provincial and municipal network companies in the radio and television provinces; 2) Leveraging the video game industry, the wholly-owned subsidiary Fenteng Interactive added 46 new games during the reporting period. By the end of the reporting period, the total number of games operated was 348. Among them, “Starry Sky Infinity” 2017H1 contributed 2.5067 million yuan in revenue, accounting for 49.42% of the game business revenue.

Profit forecast: The company's net profit for 2017/18/19 is estimated to be 0.16/0.18/20 billion yuan, corresponding to the current stock price PE 206/186/162 times, respectively. I am optimistic that the company will maintain a “increase in holdings” rating based on the content layout of radio and television channels.

Risk warning: The VR industry is not growing as fast as expected; video game revenue is falling short of expectations.