Maintain "Buy" with TP unchanged at HK$4.85. Currently, we value iDreamSky (the "Company") at 2.3x PS ratio for 2023, and estimate a market capitalization of around HK$6.8 bn, equivalent to 36.1x P/E ratio for 2023 and 13.4x P/E ratio for 2024.

Overall, iDreamSky's revenue largely aligns with our and the market's expectations, while its operating profit surpassed both our and the market's expectations. With the Company's strategic focus on optimizing a range of lower-return projects and operations from 2022 onwards, a certain decline in revenue scale has been anticipated. Particularly noteworthy is the IP derivatives business, which experienced a significant 72.7% YoY decrease and has been officially divested from the Company's core operations during the first half of 2023. Additionally, the primary gaming business revenue also witnessed a 17.1% YoY reduction, contributing 95% of the total revenue, up from 93% in 1H22. Despite a drop of 18.8% in 1H23 revenue compared to the previous year, the Company's gross margin and operating profit margin have notably improved. The gross margin increased from 43.3% in 1H22 to 45.1% in 1H23, and the operating profit margin shifted from -10.9% in 1H22 to 13.7%, successfully transitioning from losses to profits and achieving operating profits that exceeded expectations. Ultimately, the Company achieved a net profit attributable to shareholders of RMB40 mn in 1H23, a substantial turnaround from the RMB200 mn net loss in the same period last year.

The Company plans to implement a stock repurchase program to boost long-term investor confidence. As authorized by the 2022 Annual General Meeting of shareholders, the Company is permitted to repurchase shares up to a maximum of 10% of the total issued shares. The recently announced share repurchase plan has a total amount not exceeding HK$200 mn. The Board of the Company believes there are ample financial resources to conduct share repurchases while also sustaining the development of the Company's business.

We believe that the Company's in-house developed games have the potential to generate revenue growth that exceeds market's expectations, leading to a significant improvement in its profitability and cashflow in the short term. Currently, the Company's self-developed games are serving as a significant source of high-quality revenue and contributing to notable improvements in cash flow. Simultaneously, the Company's in-house user base has started playing a pivotal role in game publishing and operation, with a significant enhancement in gross margin and operating profit margin being crucial indicators. Additionally, during the first half of 2023, the active community count of Fanbook has maintained steady growth, with over 2,000 new communities added, and transaction volume surpassing the unexpected milestone of RMB100 mn. We expect that iDreamSky's long-lifecycle games will continue to generate stable revenue, while its in-house development capabilities will periodically create new sources of revenue growth for the Company.