Company News The company released its 2018 three-quarter report. Q1-Q3 achieved revenue of 2,007 billion yuan, an increase of 69.33% over the previous year; net profit of the mother was 755 million yuan, an increase of 157.31% over the previous year. The three-quarter report on the matter review was in line with expectations. The increase in sales expenses lowered the net interest rate. The company achieved revenue of 628 million yuan in a single quarter in Q3 and realized net profit of 202 million yuan. Compared with the same period last year, the company's revenue increased 17.67% year on year, and net profit increased sharply by 125.47% year on year. The increase in performance was mainly due to the increase in the scope of the company's consolidated statements this year, Outfit7; compared with the previous quarter, the company's revenue fell 9.08% month-on-month, and net profit fell 23.28% month-on-month, and the decline in performance was affected by multiple factors. During Q3, the company further enriched the game product matrix around the “Talking Tom Family” IP. The company successfully launched the new game “Talking Tom Candy Run” (Talking Tom Candy Run) in August. The game entered the top 10 domestic iOS download rankings as soon as it was launched, once again confirming that the “Tom Cat” series of games has strong “ranking ability”. Although the company's products adopt a global distribution model and are less affected by the suspension of domestic game version approval, some of the company's new products are still unable to enter the mainstream domestic Android app market at the same time as overseas due to version restrictions, which has affected the company's revenue growth to a certain extent. The company's Q3 sales expense ratio was 7.12%, an increase of 2.58pct over the previous month. Mainly, the company confirmed the upfront sales expenses of the strategic cooperation with Ali, which led to a decline in the company's profit margin. Combining online and offline to further expand the influence of the “Tom Cat” IP in terms of online content, the company plans to launch the blockbuster product “My Talking Cat 2” in Q4. The game has now been tested in many overseas countries and regions. The test feedback data is good, and it once achieved excellent results in the top 2 iOS download rankings in Canada and other regions. In addition, IP-based apps such as “Brawl Squad” are also planned to be launched. In addition to games, the company also lays out online content, including animations and movies. The second season of the “Talking Tom Family” animation series was launched on Youku in June of this year. Up to now, the total number of views has exceeded 160 million times, and the third season of the animation has also been first launched overseas. On October 30, the company announced the “Tom Cat” movie plan through its official website. Currently, it is actively carrying out preliminary related work. In terms of offline entertainment, the company has signed a strategic cooperation agreement with Alibaba, and the two sides will jointly promote the development and sale of “Tom Cat” series IP derivatives. Currently, some IP authorized products are sold online through e-commerce channels such as Tmall. In addition, “Tom Cat” theme parks have opened in shopping malls in Hefei and Shangyu. In the future, the company also plans to open new theme parks in Shanghai, Hangzhou and other places. Profit Forecast and Valuation We are optimistic about the company's extensive and in-depth layout around the “Tom Cat” IP. With the continuous improvement of the company's products, the potential monetization capacity based on this IP is expected to be further unleashed. The company's net profit attributable to shareholders of the parent company in 2018-2020 is estimated to be 1,016 million yuan, 1,303 billion yuan and 1,618 billion yuan respectively. EPS per share is 0.52, 0.66 and 0.82 yuan, respectively, and corresponding PE is 13.71, 10.69, and 8.61 times, maintaining the “increase in holdings” rating. Risk suggests that the performance of the subject of the acquisition fell short of expectations; game industry policies were further tightened; derivatives development fell short of expectations; and chemical business performance fell short of expectations