Huaxia Audiovisual Education announced that its mid-year income was 231 million yuan, down 40% from the same period last year, and its adjusted net profit fell 31% year-on-year to 98.8 million yuan. Both revenue and profit were lower than we expected. We believe that there is uncertainty and seasonality in the revenue recognition of the company's film and television business and the arts examination training business, resulting in a decline in revenue and profits. From the perspective of income structure, the income of higher education business was 212 million yuan, an increase of 13.4% over the same period last year, and the income of art examination training business was 15.17 million yuan, while that of film and television production business was only 4.16 million yuan, down 98% from the same period last year because there was no delivery in the first half of the year. In addition, due to the increase in the proportion of higher education business with high gross profit margin and high net profit margin, the gross profit of Huaxia audio-visual education reached 140 million yuan in the middle of 21 years, the gross profit margin was 60.6% (14.3% higher than the same period last year), and the adjusted net profit margin was 42.8%, an increase of 5.6% over the same period last year.

Higher education is growing steadily. The company's revenue from higher education business was 212 million yuan, an increase of 13.4% over the same period last year. The steady growth of this sector is mainly due to the expansion of the number of students in Nanjing Institute of Communication and the increase in tuition fees brought about by the expansion of international education enrollment with high fees. As the Nanjing Institute of Communication successfully completed the conversion of an independent college, driven by favorable policies, the school's enrollment plan for the 21st academic year (undergraduate + junior college) increased by 13.3% year-on-year to 4700, and the number of students increased by 15% year-on-year to 17541. In the 21st 22 academic year, the enrollment plan of Nanjing Communication College was further raised to 6790 (undergraduate: 4900, junior college: 1890), a year-on-year growth rate of 44%. As the company's enrollment ratio is close to 23:1, which is much higher than the industry average of 1.5 per cent, we believe that the enrollment rate of Nanjing Media Institute will remain at 99 per cent. Therefore, we expect that the enrollment size of Nanjing Communication College will reach about 21822 in the 21st 22 academic year, an increase of about 24% over the same period last year. As the Nanjing Communication Institute's application for fee increase has not been answered and this year's enrollment is nearing completion, we expect that the tuition fee for the unified enrollment of students in the 22nd academic year will remain at the average level of 16000 yuan. Therefore, we predict that the higher education business income of Huaxia audio-visual education will reach 475 million yuan in 2021, an increase of 31% over the same period last year.

Film and television projects are rich in reserves, waiting for a rebound in the second half of the year. Film and television business due to the characteristics of the project system, revenue recognition can only be carried out after delivery, resulting in uncertainty, but also led to the company's film and television business revenue fell 98% year-on-year to 4.16 million yuan in the first half of the year. But the company has actively produced a number of TV series and films in the second half of 20 and the first half of 21, including "Kunlun Silk Road Treasure", "unparalleled Beauty" and "Don't call me Dionysus 2".

All of them were filmed before March of 21, and are expected to be delivered in October and November of 21. Therefore, we expect the company's film and television business revenue to reach about 299 million yuan in 2021. In the long run, the company's project reserve is still abundant, with heavyweight IP such as "East Evil and West Poison" and "Kangxi Emperor". Assuming that the company can maintain 1 or 2 film and television projects a year, we estimate that the company's film and television business revenue in 2023 will reach 436 million yuan.

The training of the art examination has entered the off-season in spring and summer, and the income is confirmed to be seasonal. As Huaxia audio-visual education completed the merger of Shuimuyuan studio in April 21, the company's income from art examination training reached 15.17 million yuan in the middle of 21 years. We believe that the training of the art examination is seasonal, and the training of students will last up to 8 months from July of each year to February of the following year. From the perspective of revenue recognition, the company's actual revenue in the second half of each year will far exceed that in the first half of each year. Therefore, we expect that the revenue from Huaxia Audiovisual Arts Test training business will reach about 256 million yuan in 2021, and the proportion of annual revenue will increase from 6.57% in the first half to 24.9%.

Keep buying. Due to the uncertainty of the film and television business, we downgrade our revenue forecast for audio-visual education in Huaxia, and we expect the company's revenue to reach RMB 10.30 trillion in 2023 (a compound annual growth rate of 28%). At the same time, with the potential tax rate change, we reduce the group's adjusted net profit forecast for 2021, 2022, 2023 to 3.83, 534, 593, 000, respectively, and the corresponding PE is 11.17, 8.00 and 7.21 times, respectively. As a result, we have lowered our 21-year earnings per share forecast from 0.23 yuan to 0.22 yuan, 22-year earnings per share forecast from 0.35 yuan to 0.31 yuan, and 2023 earnings per share forecast from 0.42 yuan to 0.34 yuan. We lowered our DCF target price to HK $5.76, corresponding to 98 per cent upside, and maintained our buy rating.