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The Giants network reported Better-than-expected second-quarter results. In view of the strong new game product line and good execution, we maintain the "overweight" rating of giant network stocks. Third-quarter revenue forecasts are slightly weaker, and we think this is due to the postponement of some web games and the uncertainty about the recent performance of major games. We are bullish on the giant network's efforts to diversify the game's product line and believe that investment in new games and new game types will pay off in the coming quarters. We have raised the target share price of the giant network from 9 US dollars to 10 dollars. This is equivalent to 8.5 times times the expected earnings per share in 2014 plus 2.2 dollars per share of cash.

Second-quarter results exceeded expectations

Giant network second-quarter revenue of 95.8 million U.S. dollars, the chain growth of 2.7%, earnings per share of 0.24 U.S. dollars, and our expectations are 94.2 million U.S. dollars and 0.22 U.S. dollars, analysts are expected to be 95.5 million U.S. dollars and 0.22 U.S. dollars respectively. Operating profit margins for the second quarter were 60.8%, above our projected 58.6%.

Active paid subscribers (APA) worse than expected

The Giants ' network was 2.328 million active in the second quarter, with a 3.1% per cent quarter-on-quarter increase, below our projected 2.415 million. Average revenue per user (ARPU) for 244 yuan, the chain growth of 2.5%, slightly higher than our estimated 239 yuan.

"Fairy World" over management expectations

The Giants ' network management suggests that the fairy world has exceeded internal expectations in terms of revenue and player indicators. It needs to be pointed out that the giant network in the second quarter of active pay users and revenue growth is mainly due to the "fairy world." Because the "Fairy World" is a newer game, and the "Journey" series has different play, so the game's public test will probably need to wait a few months. The closed test is still in progress.

Third-quarter revenue forecasts are slightly below analysts ' average forecasts

The Giants network predicts that third-quarter revenues will be flat or slightly above the second quarter. We believe that this is due to the postponement of some web games and the uncertainty of the recent performance of major games. We will be the giant network third quarter revenue forecast from 97.6 million U.S. dollars down to 96.8 million U.S. dollars, the chain growth of 1%, and analysts average forecast of 100 million U.S. dollars. We also maintain an earnings forecast of $0.22 per share, with analysts averaging 0.23 dollars. This is mainly due to lower tax rates and a lesser net profit attributable to the non-holding interests.