Huaxia Audiovisual Education announcement announced 22-year mid-term income of 378 million yuan, an increase of 75% over the same period last year, and adjusted net profit increased 39% year-on-year to 148 million yuan. Both revenue and profit are in line with our expectations. We believe that the increase in revenue and profits is mainly due to the substantial increase in the number of students in the company's higher education business after the completion of the merger and acquisition of the Olympic College, driving the higher education business income to 282 million yuan. In addition, the completion of the delivery of film and television business projects led to a 2204% year-on-year increase in sector revenue to 95.84 million yuan. Due to the increase in the proportion of the film and television business with slightly less profitability, the gross profit margin of Huaxia audiovisual education was 48.2% in the middle of 22 years (down 16 percentage points from the same period last year).

Endogenesis and extension double drive, the growth of higher education business is bright. After the company merged the Olympic College, as of June 30, 2002, the number of students in the company reached 24500, an increase of 39% over the same period last year. It is easy to exclude the growth of 2143 students brought about by the merger, and the growth rate of students in the company has reached 27%. At the same time, the enrollment of international education and vocational education made steady progress, with the number of students in school reaching 351 and 4058 respectively in the middle of 22 years, down 20 percent from the same period last year and an increase of 107 percent. We expect that thanks to the strong attractiveness of the company's own art colleges and the construction of new buildings in Nanjing Media College and the Olympic College, the number of students enrolled in the company will increase to 39000 in the 25th academic year, representing a compound growth rate of 22% for four years. In addition, as the relaxation of tuition control in Jiangsu Province is still unclear, we expect Nanjing Media School to slightly increase tuition fees to 18000 / year in the 23max 24 academic year, an increase of about 12.5% over the 22max 23 academic year.

Therefore, we expect higher education business revenue to reach 857 million yuan in 2024, a three-year compound growth rate of 22%.

Movies and TV dramas were released as scheduled, and plate revenue was restored. In the middle of 22 years, the company's film and television business income was 95.84 million yuan, a year-on-year growth rate of more than 2200%. The high performance increase is mainly due to the fact that there is no new TV series released in the first half of 21 years, resulting in a low base. In the first half of 22, the company released the new drama "the New Home" (55% of the group's investment) to recognize revenue. In the long run, due to the uncontrollable characteristics of the release time of films and TV dramas, and the limited preparation projects of the company's films and TV dramas in the next two years, we expect the annual revenue of the company's film and television sector to be between 204 million and 212 million yuan from 2022 to 2024, contributing about 31.68 million to 33.3 million yuan in pre-tax profits.

Divest art examination training and return to art higher education and film and television main business. In March, the company spun off the art examination training brand Shuimuyuan studio, which was completed in April 2021, and the profit of 38.65 million yuan in mid-22 years was not included in the adjusted profit. The company believes that the announcement on standardizing non-disciplinary out-of-school training issued by the Ministry of Education in March 2022 will strengthen the supervision of non-disciplinary education and training and have a negative impact on Shuimuyuan's business.

So the company chose to activate the termination agreement signed at the time of the merger and asked the founder of Shuimuyuan Studio to buy the business for 165 million yuan. We believe that after the company sells Shuimuyuan, the company will lose the growth point of its new business, and the coordination between the original art examination training and the main business, such as the shared enrollment center of Nanjing Media College, will also be interrupted, and the company will return to the dual main business of university operation and film and television production.

Up to increase holdings. The company is undergoing business adjustment, divesting the art examination training business, and returning to the dual main business of higher education operation and film and television production. We believe that the future growth momentum of the company will be damaged by the divestiture of the arts test training business, but the scale of students in the higher education business has increased significantly, and the growth potential is sufficient. Therefore, we maintain the group's adjusted net profit forecast of $3.50amp 3.55 / 401 million for 2022max 2024. We maintain our target price of HK $1.34 and upgrade to overweight rating.

Core hypothetical risk: the release of film and television series is not as expected; the enrollment plan of colleges and universities is not as expected.