Matters: On August 23, the company announced its 2017 semi-annual report. During the reporting period, the company achieved revenue of 351 million yuan, an increase of 82.9% over the previous year and a decrease of 20.4% over the previous year. Net profit was realized at 95 million yuan, an increase of 108.5% over the previous year and a decrease of 34.5% over the previous year. The company expects net profit of 300 to 345 million yuan from January to September 2017, an increase of 100% to 130% over the previous year. Main views 1. The 2017 Q2 performance increased significantly compared to the same period last year, with revenue up 150.5% year on year. The company achieved revenue of 258 million yuan in the second quarter, up 150.5% year on year and 177.7% month on month. The revenue growth was mainly due to the increase in IP derivatives revenue and the inclusion of True Fun Network in the scope of the merger. Net profit of the mother was 64 million yuan, up 101.0% year on year and 106.5% month on month. The increase in net profit was mainly due to a sharp increase in the company's operating profit. Gross margin was 39.4%, down 9.5 percentage points year on year and 0.9 percentage points higher than month on month. The company expects net profit for Q3 in 2017 to be 205 million yuan to 250 million yuan, and 105 million yuan for the same period last year, an increase of 95.2% to 138.1% over the same period last year; a year-on-year increase of 220.3% to 291.0%. The company generated sales expenses of 11 million yuan in the second quarter, a decrease of 19.0% over the same period last year and an increase of 33.3% over the same period last year. Management expenses were 29 million yuan, an increase of 48.3% over the same period last year and an increase of 27.7% over the same period last year, mainly due to an increase in employee remuneration. 2. The IP derivatives business took advantage of Pan Entertainment's Dongfeng, with a year-on-year increase of 46.5%. In the first half of 2017, the company's IP derivatives business achieved revenue of 181 million yuan, accounting for 51.5% of revenue, an increase of 46.5% over the previous year and a decrease of 11.3% over the previous year. Gross margin was 33.9%, down 7.3 percentage points from the previous year and 9.3 percentage points from the previous month. Driven by the IP derivatives business, the traditional derivatives business achieved revenue of 35 million yuan, accounting for 10.1%, an increase of 10.7% over the previous year and a decrease of 80.8% over the previous year. Gross margin was 34.12%, down 1.9 percentage points from the previous year and up 13.2 percentage points from the previous month. Among them, the original game business and original animation business of Meisheng Gaming and Meisheng Animation are developing steadily, providing the company with a large number of high-quality original IP resources. In addition, during the reporting period, the company became the largest shareholder of JAKKS, the world's leading Disney licensor, bringing an increase in Disney orders to the company. The company expands global derivatives business, positions large supermarket markets, integrates offline supermarkets with existing online e-commerce platforms Youwowo and Kumi.com resources, and strives to create online+offline retail channels, which is expected to promote the deeper development of derivatives business in the future. 3. Animation+gaming began left and right. The pan-entertainment industry chain increased significantly. The company's animation and game business contributed 132 million yuan in revenue in the first half of the year, accounting for 37.8% of revenue, an increase of 285.3% over the previous year, an increase of 175.0% over the previous year, and the growth momentum was strong. Gross margin was 48.5%, a decrease of 42.9 percentage points from the same period last year and a decrease of 41.1 percentage points from the previous year. The company completed the acquisition of “Tongdao Culture” at the end of 2016, and acquired the mobile game development operator Zhenqu Network in 2017. The animation, game, film, television, and stage drama business mix has gradually been completed. The cultural ecosystem of “own IP+ content production+content distribution and operation+new media operation+derivatives development and design+online and offline retail channels” is becoming more and more mature, and the benefits of the industrial chain are beginning to show. In the future, the company will accelerate its expansion to the upstream of the industry, enhance its ability to develop high-quality IP, and strive to gain a first-mover advantage in future market development. 4. Investment suggestions: During the reporting period, the company's derivatives business grew strongly, driving the non-derivatives business forward steadily. The animation and game business blossomed, and the benefits of the pan-entertainment ecosystem began to show. We estimate that the company's net profit in 2017-2018 was 377/466 million yuan, corresponding to EPS of 0.41/0.51 yuan, respectively, and corresponding PE of 34/27 times, maintaining the “recommendation”. 5. Risk warning: The development of cultural and creative industries falls short of expectations and exchange profit and loss risks.