Events: The company released its 2018 semi-annual report. The company achieved operating income of 2.122 billion yuan during the reporting period, a year-on-year increase of 44.77%; realized total profit of 579 million yuan, a year-on-year decrease of 8.59%; net profit attributable to shareholders of the parent company was 277 million yuan, a year-on-year decrease of 35.54%; net profit after deduction of 252 million yuan, an increase of 151.29%; and basic earnings per share of 0.10 yuan. The second quarter achieved operating income of 706 million yuan in a single quarter, a year-on-year decrease of 23.47%; realized total profit of 125 million yuan; net profit attributable to shareholders of the parent company was 18.85 million yuan, a year-on-year decrease of 96.22%; net profit after deduction of net profit of 6882 million yuan; and basic earnings per share of 0.01 yuan. Comment: 1) During the reporting period, the company's net profit declined and net profit after deduction increased sharply, mainly because it sold some shares of Guangzhou Yinhan Technology Co., Ltd. in the same period last year to obtain investment income. There were no such equity sales in the current period, and investment income fell 90.88% year on year; at the same time, expenses for the period also decreased. The sales expenses rates/management expense rates/financial expense rates for the first half of the year were 13.35%, 12.87%, and 7.12%, respectively. Compared with the same period last year, changes of -4.46%, -4.66%, and -1.90%; in terms of cash flow, The net cash inflow from the company's operating activities was $423 million, an increase of 207.72% over the previous year, thanks to improvements in the quality of its main business, such as an increase in video sub-accounts and accounts receivable. 2) The performance of the film and television business was impressive, with a sharp increase of 94.54% over the previous year, achieving revenue of 1,962 billion yuan. The share of revenue increased from 68.81% in the same period last year to 92.47%, contributing significantly to the main business. The top 5 grossing films and TV productions were “Fanghua 3: Goodbye,” “Long Time No See You,” “Fanghua,” “King Bahobari 2,” and “Gardenia Blossoms”. The top 5 film and television productions achieved total revenue of 854 million yuan, accounting for 40.26% of revenue. Among them, “Fanghua” grossed about 220 million yuan and “Former 3: Goodbye to the predecessor” grossed about 1.64 billion yuan during the reporting period. The company has sufficient reserves for movies and TV dramas in the second half of the year and is expected to continue to contribute to operating income. As the only representative of Chinese-language films, “Children of the River and the Lake” was shortlisted for the main competition section of the Cannes Film Festival, and the US STX collaboration film “Jasmine's Card” has been nominated for a Golden Globe and an Academy Award. Cooperation projects with STX are progressing steadily. “Ghost Blowing Lights - Yunnan Worm Valley” is also expected to be screened within the year; “Babai”, “Onmyoji”, “Picture Skin 3”, and “Phone 2” are in preparation. 3) The revenue of the brand licensing and live entertainment sector was 142 million yuan, a decrease of 28.40% compared to the same period last year, mainly due to time differences in the progress of various projects. Huayi Brothers Film World (Suzhou) was grandly opened on July 23, 2018, and Huayi Brothers Film Town (Changsha), Huayi Brothers Film Town (Nanjing), and Jianye Huayi Brothers Film Town (Zhengzhou) will also open one after another. The revenue of the Internet Entertainment sector was RMB 32.4755 million, a decrease of 88.12% from the same period last year, mainly because the same period of the previous year included the revenue of Guangzhou Yinhan Technology Co., Ltd. from January to June. The company sold part of the shares of Guangzhou Yinhan Technology Co., Ltd. in June 2017 and lost control, leading to a decline in revenue. Investment suggestions: During the reporting period, the company's film and television entertainment sector gave full play to its industry advantages, profits rose markedly, and the quality of performance improved markedly. The company had sufficient reserves for movies and TV dramas in the second half of the year, which is expected to continue to contribute to operating income. However, the brand licensing and live entertainment sector and the internet entertainment sector have both declined. With the opening of parks such as Suzhou Film World, it is expected that the live entertainment project will continue to contribute stable ticket share revenue to the company. It is predicted that the company's 2018-2019 EPS will be 0.34 yuan and 0.41 yuan respectively, and the corresponding PE will be 16X and 13X respectively, maintaining the “recommended” investment rating. Risk warning: changes in the regulatory policy for movies and TV dramas, TV series, and variety shows, etc., that the revenue of individual projects falls short of expectations, etc.