Event: The company released its 2020 interim results report. In the first half of the year, it achieved total revenue of 293 million yuan, an increase of 8.8% over the previous year; realized net profit of 153 million yuan, an increase of 0.2% over the previous year; and adjusted net profit of 180 million yuan, an increase of 16.9% over the previous year. Key investment points Overall performance grew steadily, and profitability continued to improve FY2020H1. The company achieved main revenue of 245 million yuan, an increase of 7.6% over the previous year, mainly benefiting from tuition and accommodation fee standards and an increase in the number of full-time students; other revenue was 48 million yuan, an increase of 15.60% over the previous year, mainly due to the increase in operating income of the School of Clinical Medicine and Hongshan University. The company's profitability continued to improve, and gross margin increased to 71.05% (+6.79pct) in the first half of the year; in terms of expenses, the pandemic affected promotion and enrollment restrictions, the sales expense ratio fell to 1.00% (-0.61pct), and the management expense ratio increased to 25.53% (+11.67pct), mainly due to increased share-based payment expenses, exchange losses, management personnel, depreciation and amortization expenses. The impact of the pandemic is limited, and the certainty of endogenous growth is high. FY2020H1 companies achieved tuition revenue of 235 million yuan/ +15.32% yoy, and accommodation income of 210 million yuan/ -58.28% yoy. The total refund of accommodation expenses was more than 20 million yuan mainly due to the impact of the COVID-19 pandemic. As of June 30, 2020, the total number of full-time students enrolled was 39,879/+6.36% yoy, of which the number of full-time students enrolled at Xinhua College/School of Clinical Medicine/Hongshan College/Xinhua School was 23,442, 1,751, 9,054, 5,632, respectively, up 2.50%/7.17%/204.52%/2.93% from the previous year; the number of students enrolled in continuing education at Xinhua University was 4044, down 43.87% year on year. In terms of price, the overall accommodation fee for Xinhua School in the 20/21 school year was raised from 1,500 yuan/person in the 19/20 school year to 1,500-2,000 yuan/person, and the tuition fee for general secondary school courses increased from 9,000-11,400 yuan/person in the 19/20 academic year to 9,000-16,000 yuan/person. Stabilize employment, raise school quotas, transfer, and campus expansion continue to advance. In the context of stable employment, policies for college promotion and higher vocational enrollment have promoted the expansion of the scale of operation of colleges and universities. In the 20/21 academic year, the Group's graduate enrollment plan increased by more than 1,500 students, a year-on-year increase of 290%; the total number of students excluding continuing education and secondary vocational education was 11,164 students/ +7% yoy, of which the undergraduate enrollment plan was 10,764 students/ +19% yoy, and the undergraduate enrollment plan of Xinhua University was 6,400 students/ +19% yoy, respectively. At present, the transfer of the School of Clinical Medicine has been incorporated into the “13th Five-Year Plan” and higher education adjustments. Construction of the new campus of Hongshan University began in May 2020. It is expected that the first phase of construction of both campuses will be put into use no later than September 1, 2021. After completion, it is expected that at least 40,000 additional student capacity will be added, and the campus expansion work is progressing steadily. There is plenty of cash on the books, and it is worth expecting the country to vigorously promote the transformation of independent colleges through external mergers and acquisitions. As a high-quality private higher education group, the company has benefited significantly from its rich experience in running schools, excellent brand reputation, and strong capital reserves. As of June 30, 2020, the company's book capital was about 1.1 billion yuan, providing a solid foundation for the promotion and implementation of extended mergers and acquisitions. Rapid development in the scale and profitability of schools can be expected. Profit forecasts and valuations do not consider Haiyuan University and Kunming School of Health for the time being. Net profit for 2020-2022 is estimated to be 306 million/348 million/395 million yuan respectively, corresponding to PE 13.14/11.55/10.18 times, covering the “buy” rating for the first time. Risks indicate that the progress of mergers and acquisitions and the transfer of independent colleges falls short of expectations, campus expansion falls short of expectations, policy risks, etc.