Mid-year revenue for fiscal year 21 fell 40% year on year, adjusted net profit reached 90 million yuan, down 32% year on year, in line with expectations
... The decline in performance is mainly due to the fact that the launch of film and television productions will be concentrated in the second half of fiscal year 21. At the same time, the revenue contribution of higher education and training businesses will also increase in the second half of the year
Maintaining the buying rating: the higher education business grew strongly, the training business progressed well, driving a steady outlook; the target price was lowered to HK$5.6
Mid-fiscal year 21 revenue was in line with expectations, and the higher education business contributed to the main performance
Mid-term revenue for fiscal year 21 reached 231 million yuan, down 40% from the previous year. The reported adjusted net profit was 90 million yuan, down 32% from the previous year, in line with expectations. The decline in performance was mainly due to: 1) revenue from the film and television production business reached 4.16 million yuan, a 98% year-on-year decrease compared to the revenue of 198 million yuan in the first half of FY20, mainly because no film and television productions were launched in the first half of FY21, compared to the launch of three films in the first half of FY20; 2) revenue from the training business was 15 million yuan. Major brands Mizuki began merging in April 2021, but for the art training business, the first half of the year is usually a low season. The higher education business grew steadily, with revenue reaching 211 million yuan, an increase of 13% over the previous year. The Group's gross margin increased from 46% in the first half of fiscal year 20 to 61% in the first half of fiscal year 21. Mainly due to changes in gross profit composition (higher education business contributed 97% of gross profit), the film and television production and training business recorded a net loss.
Strong performance in the second half of the year is expected to mainly drive full-year performance growth
Higher education business: We expect the segment's revenue to grow at a compound rate of 38% in the 21-23 fiscal year: 1) Driven by the new merger and acquisition of Olympic College (the number of students is expected to grow at 54%) and the expansion of its own campus, the growth rate of the number of university students is expected to reach 24%; 2) Although tuition fees are rising more slowly than we expected, tuition fees for freshmen in the 2022/23 school year are expected to increase by about 60% (the increase was previously anticipated for the 2021/22 academic year); 3) Potential acquisitions. As of June 2021, Huaxia audiovisual education had cash on hand amounting to 1 billion yuan, and there was no debt. Training business: We expect a 67% compound growth rate of segment revenue for the 21-23 fiscal year: 1) The full consolidation of Mizumuyuan. Management emphasized that Shuimuyuan's tuition fees currently amount to 200 million yuan in advance, which will contribute to the results of the second half of fiscal year 21; 2) The first Huaxia Audiovisual Art Growth Center in Beijing has already opened, and the second center is in the preparation stage. The center offers art courses for students aged 3-18. Film and television production business: The production reserve is sufficient to support the company's annual profit contribution guide of 100 million yuan, and 4 films will be launched in the second half of fiscal year 21.
Maintaining Buying Ratings: Strong Growth Prospects and Attractive Valuations
We lowered our core net profit for fiscal year 21/22 by 8% and 5%, respectively, based on the combined impact of several factors: 1) the increase in university tuition fees was slower than expected, but gross margin was better than expected; 2) the training business revenue and net interest rate were lowered. Our target price was lowered from HK$8.4 to HK$5.6 based on the total valuation of the segment: we gave the film and television production/higher education/training business 10 times/15 times/10 times the forward-looking price-earnings ratio for the next 12 months (down from 16 times/20 times/15 times respectively, based on industry valuation reductions). Our target price corresponds to 19 times/14 times the predicted price-earnings ratio for fiscal year 21/22.