Latest news: Huayi Brothers announced the 2018 semi-annual results forecast. In the first half of this year, the company's net profit fell 33%-40% year on year, mainly due to the decline in investment income. However, net profit after deduction increased by 128.5%-158.5% year on year. Analysis (1) In the first half of 2017, Huayi Brothers' investment income reached RMB 541 million, mainly from the sale of 26% shares in its online game subsidiary Yinhan Technology. In the first half of 2018, Huayi Brothers' non-recurring net profit was RMB 28.9 million, mainly from government subsidies. (2) In the first half of 2018, the company's net profit after deduction was RMB 229 million to 259 million yuan, an increase of 128.5%-158.5% over the previous year, indicating a strong recovery in the company's recurring business. During the reporting period, “Fanghua” and “Former 3: Goodbye” grossed RMB 220 million and RMB 1.64 billion, respectively. According to the company announcement, in addition to movies, other business sectors such as TV series, variety shows, artist brokerage, reality entertainment, and internet entertainment all have good prospects for development. Profit forecast and valuation We have lowered our 2018-21 earnings per share forecast by up to 31% to mainly reflect the performance forecast for the first half of this year and the decline in investment income. Accordingly, we lowered our 12-month target price from RMB 9.14 to RMB 8.28, which is still calculated based on an expected price-earnings ratio of 18 times in 2021 and a discount of 8% of industry equity costs back to 2018. A neutral rating is maintained based on valuation factors (the expected price-earnings ratio for 2018 based on recurring profit is 30 times and the industry average is 18 times). Key risk: Revenue growth in the film business and new business is faster/slower than expected.