1. Event Overview In 2020, the company's H1 achieved revenue of 926 million yuan, an increase of 33.04% over the previous year, and realized net profit of 434 million yuan, an increase of 110.11% over the previous year, mainly due to large changes in the fair value of other non-current financial assets. Net profit after deducting non-return to the mother was 269 million yuan, an increase of 10.08% over the previous year. Net cash flow from operating activities was $232 million, up 69.14% year over year. The ROE (weighted) is 7.79%. Non-recurring profit and loss was $175 million. The company achieved revenue of 517 million yuan in Q2 2020 in a single quarter, an increase of 51.93% over the previous year and an increase of 26.41% over the previous year. Net profit of 349 million yuan was realized in a single quarter, an increase of 1337.88% over the previous year. Achieved net profit of 180 million yuan deducted from non-return parents in a single quarter, an increase of 93.40% over the previous year. 2. Analysis and judgment: The performance of 20H1 increased, and the gradual launch of key products continued to increase profits. Revenue for the 2020 Q2 quarter increased 51.93% year-on-year, 26.41% month-on-month, net profit after deducting non-return increased 93.40% year-on-year, and the overall product flow performance was good. Among them, “One Punch Man: The Strongest Man” was launched in Hong Kong, Macao, and Taiwan in January 2020, and Southeast Asia in June 2020. The company continued to go overseas, with outstanding performance. At the same time, Q2 purchasing and marketing expenses were significantly reduced, and the sales expense ratio fell from 20.92% in 20Q1 to 3.35% in 20Q2. In August 2020, the company launched its own self-developed product “True Red Blade” (iOS game bestseller list 30-60). It is expected that the purchase cost for the first month of the new tour will be high, and profit release will be delayed. Key products such as “National Miracle 2,” “Tides of Darkness,” and “Street Fighter: Showdown” are progressing steadily. Among them, “Street Fighter: Showdown” began a paid file deletion test on August 25. As of the end of the reporting period, a total of 23 products were operated online. Continuously promoting the integration of research and operation has established advantages, and the company continues to promote the integrated R&D and operation model with multiple category layouts and reserves, and adheres to the core position of “technology enterprise establishment”. After years of accumulation, certain breakthroughs have been made in the fields of Unity3D, H5, and Unreal Game Engine framework construction, providing a guarantee for future game quality. Overseas markets will also continue to make efforts to launch new tours. At present, the company has established a relatively complete R&D management system and gained advantages in mainstream mobile game categories such as MMOs and cards. At the same time, it has laid out two-dimensional and other segmented fields, established a diversified product matrix for different market positions and user groups, polished quality games, and driven the long-term stable development of the enterprise. Repurchase shares promote employee stock ownership plans and deeply bind employees to protect talent advantages. In June 2020, the company launched a share repurchase plan. The company will use its own capital to repurchase some of the company's public shares through centralized bidding transactions. The total repurchase amount is not less than RMB 100 million and no more than RMB 200 million, and the repurchase price does not exceed RMB 8.61 yuan/share. All of the shares purchased will be used to implement employee stock ownership plans or equity incentives. As of July 31, 2020, the company has repurchased about 13.34 million shares and paid a total amount of about 105 million yuan. The company announced the second phase of the draft employee stock ownership plan on August 18, 2020. The source of shares is the company's repurchase of 27.86 million shares of the company held in a special securities account, accounting for 1.01% of the company's total share capital. The transfer price is 3.8 yuan/share, and the total number of employees participating is no more than 122. The company focuses on attracting outstanding talents and safeguarding the company's technical advantages. 3. Investment recommendations As products under development are launched one after another, we are optimistic about the company's medium- to long-term development potential. The current valuation level (PE, TTM) is at the level of 85.03% of the historical quartile for the past 3 years. We predict that the company's net profit for 2020-2022 will be 84 billion yuan/1.14 billion yuan/1.36 billion yuan, and EPS will be 0.3 yuan/0.4 yuan/0.5 yuan respectively. The PE corresponding to the current stock price is 27X/20X/17X, maintaining the “recommended” rating. 4. Risk warning: the launch of new games is delayed; game flow falls short of expectations; and the risk of game policy regulation at home and abroad.