1. Overview of the incident Electronic Soul Network released its semi-annual report on August 27. The company achieved revenue of 475 million yuan in 20H1, an increase of 61.63% over the previous year. Net profit of 210 million yuan was realized, an increase of 146.17% over the previous year. Net profit after deducting non-return to the mother was 177 million yuan, an increase of 130.43% over the previous year. Net cash flow from operating activities was $274 million, up 240.82% year on year. The weighted ROE is 10.56%. The company plans to distribute cash dividends of 61 million yuan in this period, with cash dividends of 2.5 yuan for every 10 shares. (Dividend rate 29.04%, dividend rate 0.5%) The company achieved revenue of 232 million yuan in Q2 in 2020, a year-on-year increase of 46.66% and a year-on-month decline of 4.28%. Net profit of 109 million yuan was realized in a single quarter, an increase of 143.78% over the previous year and an increase of 6.93% over the previous quarter. Net profit deducted from non-return mothers was 83 million yuan in a single quarter, an increase of 109.57% over the previous year and a decrease of 11.69% over the previous year. 2. Analysis and judgment: The performance of 20H1 is in line with expectations, and the mobile game business is progressing steadily. It is optimistic that the new category of mobile games will break through the company's 20H1 net profit of 210 million yuan, which is in line with the previous performance forecast in the range of 186-225 million yuan, slightly higher than the median performance forecast of 206 million yuan, an increase of 61.63% over the previous year, mainly due to the increase in the flow of various games such as the “Dream Three Kingdoms” mobile game and the reprint of the “Dream Three Kingdoms” mobile game during the reporting period. 20H1 still accounts for 48.75% of its revenue from the “Dream Three Kingdoms” mobile game, and overall client-side game revenue increased slightly. The main ones are version updates and technical improvements that the company continues to strengthen to further optimize the user experience. At the same time, our subsidiary Youdong Network (80% equity) 20H1 achieved a net profit of 36.51 million yuan. We expect to complete the annual net profit commitment of 60 million yuan without much trouble. 20H1 continues to increase R&D investment, with a cumulative R&D investment of 74.01 million yuan. The R&D cost rate was 15.59%, an increase of 39.25% over the previous year. The key mobile games “My Knight” (950,000 online reservations, 390,000+ TAPTAP reservations) and “X2 Demon Slayer” (760,000+ for TAPTAP reservations, 820,000 for Station B) are still being developed and optimized. “My Knight” is expected to be officially launched in September-October, and “X2 Demon Slayer” is expected to be officially launched in October. Among them, “My Knight” started the file deletion fee test on August 20. Also in the company's reserves are the Roguelike game “Meta Energy Is Out of Control,” which is expected to be launched by the end of this year, and the MOBA games “DC: Pinnacle Battlefield” (with version) and “Battle of the Barbarians 2,” which are expected to be launched next year. They are optimistic that the company's new mobile game categories will continue to break through. The company set up overseas subsidiaries and is actively preparing for the game to go overseas 1. The company announced in June that it will invest 15 million US dollars to establish a wholly-owned subsidiary in Singapore. In August, it was announced that it would invest 5 million US dollars to establish a wholly-owned subsidiary in Japan. The company actively invested during the reporting period to increase development strategies for overseas markets, improve global product development, maintenance and operation capabilities, and is optimistic about the company's breakthroughs in overseas business. The company's key new tours “X2: Demon Slayer” and “Dream Three Kingdoms” mobile games are expected to go overseas in the future. 3. Investment recommendations We forecast that the net profit of the company in 2020-2022 will be 4300 million yuan, 70 million yuan and 9.1 billion yuan. The PE corresponding to the company's current stock price is 26X, 16X, and 13X respectively, which is relatively cost-effective. In the short to medium term, we are optimistic about the recovery of the company's main product, “Dream Three Kingdoms”, and the long-term operation of mobile games to stabilize the basic performance market. After the launch of new games such as “My Knight” and “X2 Demon Demon Slayer” in the short to medium term, we are optimistic about the deep cooperation between the company and Tencent to help research and operation, and strategically deploy VR business in advance. At the same time, the company's cash flow quality is good, and the company's management is highly focused on the product, maintaining a “recommended” rating. 4. Risk warning: New games are not launched as scheduled, game flow falls short of expectations, and game policy regulation risks at home and abroad.