Event: The company announced interim results, 20H1 achieved revenue of 475 million yuan (YOY +61.63%), net profit of 210 million yuan (YOY +146.17%), net profit of 177 million yuan (YOY +130.43%), net operating cash flow of 274 million yuan (YOY +240.82%); corresponding to 20Q2 revenue of 232 million yuan (YOY +46.66%), net profit of 109 million yuan (YOY +143.78%), net profit of 0.83 million yuan (YOY +143.78%), net profit of 0.83 million yuan (YOY +143.78%) YOY +109.57%) Comment: 1. 20H1 The growth rate on the revenue and profit side of the company is impressive. The increase mainly comes from the “Dream Three Kingdoms” mobile game, the “Dream Three Kingdoms” reprint, and the gaming network. ① The overall gross profit margin of the 20H1 company is 86.63%, maintaining a high level; the overall net profit margin is 45.48%, a significant increase from 2019, and the cost ratio is well controlled. ② As of the end of the 20Q2 period, monetary capital was 383 million yuan (YOY +76.4%), accounts receivable of 95.86 million yuan (YOY +54.73%), contract liabilities of 352 million yuan (mainly deferred income from purchased unused items, deferred income from recharged and unused game coins, etc.), transactional financial assets of 1,286 million yuan (YOY +25.61% /increase in wealth management products), and other non-current financial assets of 125 million yuan (YOY +20.58% /increase in foreign equity investment). ③ 20H1 Youdong Network (80% of the company's shares) has a net profit of 36.51 million yuan. In March 2019, the company acquired 80% of the shares of Xiamen Tourist Network with 289 million yuan. The target promises to deduct non-net profit from the mother in 2019-2021 will not be less than 5000/6,000/72 million yuan, respectively, and the total amount will not be less than 182 million yuan. 2. The 20H2 “Three Kingdoms of Dreams” mobile game celebrated its 10th anniversary, and new product projects such as “My Knight” and “Demon Slayer” are progressing steadily. ① The domestic mobile game market has entered a stage of stock competition (20H1, China's mobile game revenue scale is 28.2 billion yuan, YOY -10%). On the one hand, the company continues to strengthen product version updates and technical improvements to further enhance the user experience; on the other hand, it adjusts operating strategies and optimizes operating plans. The “Three Kingdoms of Dreams” mobile game in January 2020 and the “Yuan Neng Out of Control” mobile game in April 2020 were launched on the Tencent Wegame platform, respectively. 20H1 Company's mobile game revenue increased slightly. ② The “Dream Three Kingdoms” mobile game is the company's main product (accounting for about 58% of revenue in 2019), and 20H2 is celebrating its 10th anniversary. On 7.25, the 2020 Dream Three Kingdoms 10th Anniversary Players' Meeting will be held from July to October, covering the top ten cities of Zhengzhou, Taiyuan, Chengdu, Shijiazhuang, Anyang, Shenyang, Jinan, Harbin, Chongqing, and Beijing. The events include MPL professional team support, cosplay shows, exclusive titles for meetings, live water games, interactive game peripherals and game item raffles, senior game planning, exchange and questions, etc. ③ In 20H1, China's mobile game revenue was 104.7 billion yuan, YOY +36%, accounting for 75% of the overall game market. The company has further strengthened the development and operation of mobile game products. 20H2 reserves “My Knight” (retro martial arts sandbox RPG/Tencent exclusive generation/existing version/8.20-8.31 paid test), “God Demon Slayer” (two-dimensional Roguelite/existing version/expected to be launched on 9.30), etc. ④ As of 8.27, “My Knight” has over 95w reservations, TapTap over 39w reservations, and TapTap ratings 8.6; “Demon Demon” has over 60w reservations, TapTap reservations are over 76w, and Station B has over 82w reservations. 3. Profit forecast and investment rating: The company started with mobile games, focused on quality R&D, and expanded to mobile games, VR games, etc. Many co-founders are from Tencent, and are still highly invested in the frontline of the business. Since 2019, performance has returned to a growth trajectory. 2020 is a major product year, and mobile games are expected to usher in a new breakthrough. We expect net profit from net income to be 414/509/588 million yuan in 2020-2022, corresponding to current PE of 28/22/19X, respectively, maintaining the “recommended” rating. Risk warning: The life cycle of old products falls short of expectations, the launch progress and performance of new products falls short of expectations, industry competition has further intensified, user acquisition costs have increased, core talent loss, corporate governance risks, market style changes, etc.