Recommended logic: The “Wu Lei effect” has driven the club's commercial value to soar, which is expected to drive the profitability of the sports sector; the club is the preferred base for Chinese players to stay abroad and has the conditions to build a “Chinese soccer IP”. The platform attributes are prominent and scarce; the company's R&D strength is strong, and the game business is optimistic about the future; the company's net profit is expected to achieve a compound annual growth of 28% over the next three years. Currently, PE in 2019 is only 19 times. Sports business: The preferred platform for Chinese players to stay overseas, creating a “Chinese football IP” ecosystem. The Real Espanyol Club, which is wholly owned by the company, is a traditional powerhouse in La Liga. The value of the platform has begun to show through dedicated management. 1) Club operations are improving day by day, digging deeper into the value of club brands and human resources, and achieving double benefits of competitive level and commercial value through healthy staff turnover, with sustainability and long-term investment value. 2) Domestic soccer is making every effort to innovate, and it is expected that there will be a new wave of overseas expansion in the future. The Chinese-owned Spanish club is based in Europe's top league. It is expected that with its advanced management philosophy, Wu Lei's benchmarking effect, and La Liga's lax signings policy, it is expected to become the preferred platform for Chinese players to stay abroad and the flag of Chinese soccer overseas. 3) In the 18/19 season, the Espanyol club ranked 7th in the league and won a seat in the Europa League qualifying next season. They will fully enjoy the European match dividends. Profits and influence may both rise to a new level. If they successfully enter the Europa League, it is conservatively estimated that they will earn at least 6 million euros in revenue. Gaming business: Seize the market segments with great potential and take advantage of the mobile game's overseas dividends. The “demographic dividend” of China's game market has disappeared, and it has entered the stock game stage. Overseas markets and segments may become winners and losers in the game. In response to market changes, the company relied on its own R&D advantages and successful experience in overseas products to develop highly targeted boutique games and achieved good performance (excluding the influence of Quyuan Network, game business revenue increased by 52.4% in 2018). At the same time, the company has large-scale IP reserves, complete and abundant resource reserves, which is a solid foundation for the future development of the game business. Toy business: The combination of multiple benefits is expected to bring about recovery. The growth rate of the global toy market is growing steadily, and the number of people aged 0-14 in China has gradually stabilized, rebounded to 235 million in 2018. The toy demand market is expected to recover. The company has IP licenses for world-renowned automobile brands and continues to strengthen the research and development of toys and derivatives. Profit forecasts and investment advice. We expect the compounded net profit growth rate of the company to reach 28% in 2019-2021. Through the segmental valuation method, we estimate that the company's corresponding market value in 2019 was 7.8 billion yuan, and the corresponding stock price was 6.27 yuan/share, which is equivalent to 23 times the valuation. It was covered for the first time and given a “buy” rating. Investment Requirements Key Assumptions 1. The Spanish club is operating steadily, and the level of competition and commercial value have increased dramatically. The compound growth rates of television broadcast revenue and sponsorship advertising revenue in the next 3 years will be 17% and 35%, respectively; 2. There have been no major changes in game industry policies, and the launch of new game development has been carried out smoothly. Considering the divestment of Quyuan's network and marginal improvements in industry policies, the game business flow is expected to grow at 25%, 18%, and 15%, respectively, in the next 3 years, and the gross margin will remain at 67%; 3. Demand in the toy industry is growing steadily, driving the toy market to continue to improve. Our view that is different from the market The market generally believes that the long-term investment value of the company is insufficient, and that the stock price performance is biased towards a short-term game. We believe that the Espanyol club is an established powerhouse in La Liga, ranking 7th in the league with a historical record; it has a deep youth training base and is famous in Europe for its youth training strength. After years of operation, the club's operations have been perfected, and the team's interests at the competitive level and value level have been maximized through healthy player flow. The Espanyol Club is the preferred base for domestic players to stay abroad. It has extremely scarce platform-based attributes and has long-term investment value. The catalytic factors for the rise in stock prices were that the club's competitive performance exceeded expectations, important sponsorship rights were sold, major player transfers occurred, and there was good feedback on newly launched game products. Valuation and target prices We expect the company's net profit in 2019-2021 to be 330 million yuan, 4.1 million yuan and 500 million yuan respectively, corresponding to EPS of 0.27 yuan, 0.33 yuan and 0.40 yuan, respectively. Through the segmental valuation method, we estimate that the company's corresponding market value in 2019 is 7.8 billion yuan, the current share capital is 1,244 million shares, and the corresponding stock price is 6.27 yuan/share, which is equivalent to 23 times the valuation. It is covered for the first time, giving it a “buy” rating. Investment risk Risk of macroeconomic downturn, risk of industrial policy changes, risk of club operations or failure to meet expectations, risk of game business development or failure to meet expectations.