The company's revenue is forecast to be 240 million yuan in the first half of 2021

Since no large-scale film and television productions were publicly distributed in the first half of the year, we expect the company to be in the first half of 2021

The annual media business performance is under pressure. Furthermore, considering that the first half of the year is a low season for the training business, we expect the company's revenue for the first half of 2021 to 240 million yuan, and the adjusted net profit of 70 million yuan to the mother.

Key points of interest

There have been no significant deliveries in the film and television business, hampering performance in the first half of the year. In addition to the higher education business, the company's main business currently accounts for 54% of revenue (FY20) from the film and television business. The company revealed that “Kunlun Silk Road Treasure”, “Unrivaled Beauty”, and “Don't Call Me a Bacchus 2” were not announced for delivery in the first half of the year. We expect this will put pressure on FY1H21 revenue.

There was no increase in tuition fees for the 2021/22 academic year, and international college enrollment is expected to decrease. In September 2020, the Jiangsu Provincial Development and Reform Commission issued the “Notice Concerning the Public Solicitation of Comments and Suggestions on the “Notice on Further Promoting the Reform of Academic Fees for Private Colleges and Universities” (hereinafter referred to as the “Fee Reform Notice”), which proposed “starting with the fall semester of 2021, the 3 pilot colleges and 4 undergraduate fees of the Nanjing School of Communication will be liberalized”, but as of now, the “Fee Reform Notice” has not been announced. Tuition fees for new students enrolled in the 2021/22 academic year of Nanjing University of Communication have not increased. At the same time, the impact of the epidemic continues. We expect that there will be some pressure on international college enrollment in the 2021/22 academic year. There was a drag on the performance of higher education in the FY21 and FY22 fiscal years.

The company acquired the Olympic Academy as a second-level college, and the number of places to be increased over the next 4 years. According to the public acquisition results meeting, management stated that in addition to the existing places of about 3,000 students, the Olympic Academy will generate an additional 8,000 places, and the number of students at the Olympic Academy will increase to 11,000 by 2025. We expect that the revenue of the Nanjing Institute of Physical Education in 2021 and 2022 will be 48.38 million yuan and 63.4 million yuan respectively. The progress of the acquisition and actual enrollment will affect its contribution to the performance growth of audiovisual education in China.

Valuation and advice

Since the Olympic Academy has not announced a merger, we have yet to include the impact of the acquisition of the Olympic Academy on performance forecasts. Since the renewal progress of the Nanjing Institute of Communication fell short of expectations, we lowered the FY21/FY22 revenue forecast for Huaxia Audiovisual Education by 6.0% and 9.0% to 1.01 billion yuan and 1.21 billion yuan respectively; we lowered the FY21/FY22 adjusted net profit forecasts of FY21/FY22 of FY22 by 12.4% and 18.9% to 370 million yuan and 440 million yuan respectively. Due to the influence of the K12 sector policy, the valuation of higher education companies has been drastically adjusted. We believe that the company's current valuation is attractive for investment. We maintained our industry rating and lowered the target price of Huaxia Audiovisual Education by 39% to HK$5.5 (based on the price-earnings ratio of 18 times in FY2022), which has an upward margin of 67% compared to the current stock price. Currently, Huaxia Audiovisual Education is trading 11 times the price-earnings ratio in 2022, and is trading at 10 times the price-earnings ratio in 2022 after the Olympic Academy merger.

risks

Olympic Academy mergers and acquisitions fell short of expectations; delivery of film and television productions fell short of expectations.