In the first half of the year, the income of 230 million yuan was basically in line with expectations, and the net profit of Huaxia Audiovisual Education exceeded expectations by 15%. The results of Huaxia Audiovisual Education announced that the income in the first half of 2021 was 230 million yuan, a decrease of 39.9% over the same period last year, which was basically in line with our expectations; the net profit of home was 80 million yuan, 15% higher than we expected The adjusted net profit was 90 million yuan, 28% more than we expected, and the adjustment resulting from the acquisition of Shuimuyuan exceeded expectations.

Development trend

Higher education business is expected to grow steadily in the second half of the year. In the first half of the year, the company's higher education business revenue was 210 million yuan, an increase of 13.4% over the same period last year, mainly due to a 19% increase in student enrollment. According to the announcement, the company expects the number of students in Nanchuan 2021 to increase by at least 30% compared with 2020 in 2021. In terms of the impact of the epidemic, on August 19, Nanjing turned into a low-risk area, and southward spread has issued arrangements for new students to register for the autumn semester. We expect the company's higher education business to achieve relatively stable growth in the second half of the year. A number of film and television works are to be delivered in the second half of the year. Management said that "Kunlun Silk Road Treasure", "unparalleled Beauty", "Don't call me Dionysus 2" and "ideal House" are expected to be delivered in the second half of 2021. One of the works is expected to launch in October, one is expected to launch in November, and another is expected to obtain a release license in December. On August 27, the Internet Information Office issued a notice on further strengthening the management of chaos in the "rice circle". We believe that it will help standardize the "fan economy", promote the development of industry compliance, and enhance the importance of delivering high-quality content. The company has said in the past that it will focus on the shooting of modern dramas that carry forward mainstream values in recent years, and that it has conducted negative news censorship of actors and directors in filming.

The regulation of art training business varies in different regions. In terms of art training, Huaxia Audiovisual Arts growth Center plans to start business in September. The curriculum mainly includes drama, art, music and dance courses to enhance students' core literacy and promote students' all-round development. In terms of the training business of the art examination, according to the management, as of the end of August, the advance collection of Shuimuyuan has exceeded 200 million yuan, which we think will support the performance of the company's training business in the second half of the year. Since July, the supporting policies of double reduction have been issued one after another, and the Ministry of Education has issued the Circular on further clarifying the scope of discipline and non-discipline of out-of-school training at the stage of compulsory education, which makes it clear that when carrying out out-of-school training. The subject of art (or music, art). At present, the market's concern about the impact of the policy on the art training business has not been completely eliminated. "and so on, it is managed according to non-disciplinary categories"; the degree of regulation varies from place to place in the implementation of the policy.

Profit forecast and valuation

We basically maintain the 2021 / 2022 revenue forecast, and considering that the profit margin of the higher education business is better than expected, we raise the adjusted net profit forecast for 2021 / 2022 by 3.2% to 380 million yuan / 450 million yuan. Maintain an outperform industry rating and a target price of HK $5.50 (based on a valuation of 17 times 2022 p / e), with 76.8% upside from the current share price, which currently trades at 9.8 times 2022 p / e.

Risk

Due to the influence of the industry, the delivery of film and television works is less than expected; the risk of art training supervision is higher than expected.