Matters: On October 27, the company announced its 2017 three-quarter report. The company achieved revenue of 684 million yuan in the third quarter, an increase of 54.89% over the previous year and an increase of 25.74% over the previous year. The increase in revenue was mainly due to the inclusion of Genqu Network in the scope of mergers and the increase in IP derivatives revenue. Net profit of Yuimu was 302 million yuan, up 101.17% year on year and 71.59% month on month. The main gain comes from the initial results of the construction of the IP cultural ecosystem. The company expects net profit of 342 million yuan to 437 million yuan for the full year of 2017, an increase of 80%-130% over the previous year. Key Opinions 1. 2017Q3 performance increased significantly over the same period last year, net profit increased 97.98% year on year. The company achieved operating income of 333 million yuan in the third quarter, up 33.39% year on year and 29.18% 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 was 207 million yuan, up 97.98% year on year and 226.5% month on month. The month-on-month increase was mainly due to cyclical fluctuations brought about by the increase in Western festivals in the third quarter. Gross margin was 47.45%, up 7.4 percentage points year over year and 7.1 percentage points month on month. The company expects net profit of 0.4 to 135 million yuan in Q4 in 2017, and 0.4 billion yuan in the same period last year, an increase of 0% to 237.5% over the same period last year; a decrease of 34.8% to 80.7% over the previous year. The company incurred sales expenses of 100 million yuan in the third quarter, a year-on-year decrease of 15.82% and a year-on-month decrease of 7.92%. Management expenses amounted to 33 million yuan, an increase of 10.8% over the same period last year and an increase of 15.08% over the same period last year. 2. The IP derivatives business continues to deepen, and channel construction is improving. The company holds 19.5% of the shares of JAKKS, the world's leading Disney licensor, and has become the largest shareholder of JAKKS, bringing an increase in Disney orders to the company. At the same time, the company collaborated well with JAKKS to help JAKKS reduce procurement costs. Disney's top IP work “Frozen 2” is expected to be launched in 2019. Currently, the company has been authorized to launch a series of related IP derivatives in the future, which is expected to bring significant benefits to the company's performance. In addition to this, the company is expanding global derivatives business, positioning large supermarket markets, integrating offline supermarkets with existing online e-commerce platforms Youwowo and Kumi.com resources, and striving to create online+offline retail channels, which is expected to promote the deeper development of the derivatives business in the future. 3. The game and animation business is progressing steadily, and the acquisition dividends reflect the animation side. The company is currently producing major movies based on its own IP “Demon Tales”, and “Star Academy” for K12 is also in the continuous development stage. In terms of gaming, the company acquired 100% of Zhenqu Network's shares to boost the mobile game business. Zhenqu Network's 2017-2019 profit promises are 1.02, 1.18 and 137 million yuan, and performance dividends are gradually being released. The company expects to launch the casual card game “Contract of Light” for women in the second half of the year, and the “Book of Demons” mobile game will also be released next year. Currently, the company's games all come from its own IP. 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 respectively, corresponding to EPS of 0.41/0.51 yuan, and corresponding PE of 46/38 times, maintaining the “recommendation”. 5. Risk warning: The development of cultural and creative industries falls short of expectations and exchange profit and loss risks.