Key investment events: On the evening of August 23, Meisheng Culture released its 2017 semi-annual report. The company achieved operating income of 351 million yuan, an increase of 82.89% over the previous year, and net profit of 94 million yuan, an increase of 108.51% over the previous year. The company predicts that the 2017 three-quarter report will achieve net profit of 3-345 million yuan, an increase of 100%-130% over the previous year. Comment: Revenue and profit are growing rapidly, mainly due to the rapid growth of IP derivatives and the combined effects of True Fun Network. In 2017, H1 acquired 19.5% of the shares of JAKKS, an American toy and anime apparel giant. Its IP derivatives grew rapidly, and its performance stability gradually increased. At the same time, the revenue of Zhenqu Network was consolidated in March, helping the company maintain high growth in revenue and profit. By project: 1) IP derivatives: As the largest shareholder of JAKKS, the IP derivatives business has maintained rapid development. In 2017, H1's IP derivatives revenue (mainly including anime apparel, cosplay apparel, etc.) was 181 million yuan, up 46.45% year on year, and gross profit margin was 33.84%, down 7.34% from the same period in 2016. The rapid increase in revenue mainly comes from two parts: 1) In 2017, the company acquired 19.5% of the shares of American toys, anime and apparel JAKKS with a total consideration of about US$26.60.38 million and became its largest shareholder. Since JAKKS is currently the largest overseas customer of the company's traditional anime apparel (accounting for 37.78% of its apparel revenue in 2016), after acquiring JAKKS shares, the company has further deepened cooperation between the two sides, and the company's animation and apparel business has maintained high growth; on the other hand, the company currently owns the largest in China The cosplay clothing e-commerce brand Youwaowo. The rapid growth of downstream comic shows and fanfare markets has also led to a rapid increase in revenue from its cosplay clothing business. The decline in gross margin is mainly due to cost expansion due to company channel construction, yet revenue growth is lagging behind, and gross margin is expected to pick up after gradual expansion in the future. 2) Traditional derivatives: Revenue and gross margin remain stable. In 2017, H1's traditional derivatives revenue was 352.61 million yuan, up 10.68% year on year, and gross profit margin was 34.12%, down 1.85% from the same period in 2016. Traditional derivatives are mainly holiday clothing products exported abroad. Currently, this part of the business is viewed as being in a non-core position in the company's overall business value chain based on core IP, because we expect its revenue growth rate and gross margin to remain stable in the future. 3) Games and animation: In addition, True Fun Network achieved significant revenue growth, and its original business also maintained steady growth. In 2017, H1's traditional derivatives revenue was 133 million yuan, up 285.25% year on year, and gross profit margin was 48.45%, down 42.9% from the same period in 2016. The main reason for the sharp increase in revenue and the sharp decline in gross margin was the merger of Zhenqu Network (Genqu Network's gross profit margin was about 30% lower than the original business). In March 2017, the company acquired 100% of Zhenqu Network's shares for $1,111 billion. The animation works launched by the company in the first half of the year include “Demons,” “Shoes Are Crazy,” and “Clever Metal,” etc., and has also reserved a number of mobile game IPs. Among them, women have entered the post-production stage for the casual card game “Pact of Light.” The expense ratio has been drastically reduced, and the profit structure continues to be optimized. The sales and management expense ratio of 2017H1 company was 5.38% and 14.77% respectively, down 4.85% and 5.82% from the same period in 2016. The reduction in the cost rate mainly comes from two aspects. On the one hand, it also shows a significant increase in revenue from Zhenqu Network, and on the other hand, the scale effect associated with the company's business expansion. 2017H1 achieved investment income of 46.84 million yuan, accounting for 42.4% of operating profit, down 9.8% from the same period in 2016, indicating that the company's profit structure continues to be optimized. We believe that at present, the company mainly has the following points of interest: 1) The IP derivatives business continues to deepen and nationalize. The acquisition of 19.5% of the shares of JAKKS, an American toy and anime apparel giant, and the investment in JAKKS is a continuous deepening of the internationalization process of Meisheng Culture, using derivatives as a breakthrough to continue to promote international expansion. Foreign companies currently invested in by Meisheng Culture include Dutch B.V., Costume Craze, and JAKKS, all of which are derivatives manufacturers and channel providers. At the same time, in terms of domestic derivatives, the two-dimensional market is vigorously deployed. Its subsidiaries, Youwowo and Manyou Gravity, are the largest cosplay brands in the country. 2) Acquire Zhenqu Network in cash, improve the layout of games and platforms, and significantly increase the company's performance. The company acquired 100% of Zhenqu Network's shares with 1,111 billion yuan, and profit promises for 2017-2019 were 102, 1.18 and 137 million yuan. Under the same control, the consolidated schedule for the whole year was consolidated, and the account transfer changes were completed in April. 3) The animation and game business is progressing steadily. Animation projects launched one after another this year currently include “Star Academy 3,” “Demons,” and “Shoes Are Crazy,” etc., and the projects in reserve also include the “Star Academy” movie. In terms of games, “Pact of Light,” a casual card mobile game for women, is also expected to be screened this year. 4) Deeply cultivate women in the IP market and tap potential consumption power. The company has a number of IPs focusing on female consumption, including Uncle Tong, Star Academy, and Light Contract, etc., and is expected to become a leader in the female entertainment consumer market in the future. 5) Cash reserves are abundant. Currently, the company can use more than 2 billion dollars in cash and will continue to develop business in upstream IP. Profit forecast and investment advice: We expect the company to achieve net profit of 4.29, 5.43 and 647 million yuan in 2017-2019, corresponding to EPS of 0.47, 0.60 and 0.71 yuan, corresponding to the current valuation of 30/23/19 times, and a target price of 16.5 yuan, giving it a “buy” rating. Risk warning: 1) risk of insufficient continuous content innovation; 2) risk of insufficient pan-entertainment business integration capacity; 3) risk of industry growth falling short of expectations