Incident: The company released its 2017 semi-annual report. In 2017, H1 achieved revenue of 351 million yuan, an increase of 82.89%; net profit to mother was 95 million yuan, an increase of 108.51% year on year, after deducting non-net profit of 51 million yuan, an increase of 86.66% year on year, corresponding EPS of 0.1 yuan, which is in line with expectations. Among them, 2017 Q2 achieved revenue of 258 million yuan, a year-on-year increase of 150.03%, and net profit to mother of 63 million yuan, an increase of 101.04% over the previous year. The company expects to achieve net profit of 3-345 million yuan from January to September 2017, a sharp increase of 100%-130% over the same period last year. The volume of the derivatives business was combined with real interest, and the revenue side surged 82.89% year over year. By business, in 2017H1, the company's IP derivatives, traditional derivatives, and animation games achieved revenue of 1.81/0.35/ 132 million yuan respectively, accounting for 51%/10%/38% of overall revenue. IP derivatives: Due to continued growth in overseas demand, increased channel performance, and initial results in the domestic derivatives market, the first half of the year increased by 46.5%. Gross margin fell 7.34PCT to 33.84% from 41.18% in the same period last year due to business diversification; traditional derivatives: the gradual recovery of the overseas market led to a 10.68% increase in traditional derivatives, and gross margin fell slightly by 1.85PCT to 34.12%; Animation games: Benefiting from the company's cartoons broadcast on cooperative platforms such as iQiyi and Tencent Video and the real fun network In addition, the share of the anime game business increased from 18% in the same period last year to 38%, achieving rapid growth of 285%. Among them, Zhenqu Network began merging in March 2017, and reported revenue of 93 million yuan, net profit of 0.27 million yuan, and net profit margin of 28.8%; the traditional animation game business achieved revenue of 39 million yuan, an increase of 15% over the same period last year. Affected by business diversification, the gross margin of the animation game business fell to 48.45% from 91.35% in the same period last year, corresponding to a 104% increase in gross profit, which is lower than the 285% growth rate on the revenue side. Expenses have declined significantly, and return on investment has boosted performance. Affected by business diversification, the company's comprehensive gross margin level fell 9.5 PCT to 39.41% in the first half of the year compared to the same period last year, but at the same time, the cost ratio fell 9.69 PCT to 21.11% during the period. In the first half of the year, it achieved an investment income of 47 million yuan, mainly income from financial management and equity transfers of its subsidiaries, which led to high performance growth to a certain extent. The layout of the entire industry chain is improving, and synergy effects are gradually showing. After years of layout and development, based on the two strong sectors of derivatives and self-media, the company actively explores upstream and downstream and industrial chain extensions, and has basically built a closed-loop industrial chain ecosystem of “own IP+ content production+content distribution and operation+new media operation+derivatives development and design+online/offline retail channels”. Through forms of IP self-construction, investment, cooperation, etc., on the one hand, it has strong internal IP control capabilities, and has also obtained top external IPs such as Uncle Tong Dao and Demon Plan to achieve development, monetization, and business collaboration throughout the entire industry chain. The world's leading IP derivatives monetization platform is about to launch, and performance is about to explode. After the fixed increase was completed last year, the company's strategic layout to build an IP culture ecosystem accelerated. It successively acquired Zhenqu Network to complete traffic and advertising, and invested 19.5% of JAKKS, the third-largest listed toy company in the US, to become its largest shareholder, and jointly shared the world's top IPs (Disney, Marvel, Nintendo, etc.), strengthening IP derivatives R&D, design, and supply chain organization capabilities. We judge that the company will continue to lay out in the industrial chain in the future to achieve the goal of having leading international standards in IP, R&D and design, manufacturing, and channels, and help the company become a leading global IP derivatives monetization leader. The quality of the company is constantly improving, and performance is about to explode. Profit forecast and valuation: The net profit for 17-18 is expected to be 402 million yuan and 491 million yuan, respectively, up 112% and 22% year-on-year, and the corresponding EPS is 0.44/0.54 yuan/share, respectively. The company has an international vision, clear strategy, strong execution, and huge market space for IP derivatives. The business will enter a period of explosion. Considering the company's high growth, the valuation level is slightly higher than that of peers, and the company will be given an 18-year 40XPE with a target price of 21.6 yuan/share to maintain a “buy rating.” Risk warning: termination of brand image authorization; exchange rate risk, failure to fully and effectively integrate foreign investment project resources or performance falls short of expectations; poor connection between IP image and monetization channels, etc.