Huayi Brothers achieved revenue of 324 million yuan in the first half of 2020, down 69.88% from the same period last year. The net profit returned to its mother was-231 million yuan, an increase of 39.00% over the same period last year, and the net profit was-234 million yuan, up 39.61% from the same period last year. Affected by the epidemic in the first half of the year, all cinemas across the country were closed, films could not be shown, live entertainment was also affected, short-term performance was affected as expected, and the decline in revenue was also caused by changes in the scope of corporate mergers. The company's gross profit margin in the first half of 2020 was 22.55%, an increase of 2.00 pct over the same period last year; due to the impact of the epidemic and changes in the scope of the merger, the company's expenses decreased accordingly. In terms of cash flow, the net operating cash flow of the company in the first half of 20 years was-357 million yuan, compared with-205 million yuan in the same period last year.

Film and television entertainment sector in the first half of the series outstanding performance, real-scene entertainment from project development to deep ploughing. The company's 20H1 film and television entertainment segment achieved revenue of 275 million yuan, down 73.18% from the same period last year, with a gross profit margin of 22.21%, an increase of 2.42pct over the same period. In terms of TV series, the proportion of income from online entertainment content has increased significantly. The online drama "the Chef with fireworks in the World", the online movie "the Beggar with Nine fingers", and the co-produced online drama "Ink in the Antiquities Bureau looking for porcelain" have all achieved good broadcasting results. The revenue of the company's 20H1 brand licensing and live entertainment segment was 9.93 million yuan, down 65.97% from the same period last year, with a gross profit margin of 69.13%, and an increase in 22.69pct over the same period. At present, the company's real-life projects in Haikou, Changsha, Suzhou and Zhengzhou have been resumed one after another.

Since July, cinemas have resumed work in an orderly manner, and the company's production of the giant "800" has strongly led to recovery, with abundant follow-up reserves, which can be expected in the second half of the year. The war blockbuster "eight hundred" directed by Guan Hu was released on August 21, 2020. it is the first domestic blockbuster to be released in theaters after resuming work. according to the company announcement, as of 24:00 on August 25, 2020, the cumulative box office revenue has exceeded 1.155 billion yuan. the corresponding operating income ranges from 205 million yuan to 245 million yuan. In the follow-up reserve, the film "serving the God" (formerly known as "Onmyoji") based on phenomenal mobile games and "warm hug" directed by Chang Yuan (scheduled for December 31) are expected to be released in 2020.

Investment advice: we launched the company's in-depth report on August 19, and we are optimistic that Huayi will usher in a double inflection point at the industry and company operation level. at the industry level, with the gradual filing of domestic new films, the film industry is accelerating its recovery. at the same time, small and medium-sized enterprises will accelerate clearance in the cold winter of the industry, and once the head company overcomes the difficulties through financing or other strategies, its competitive advantage and market share are expected to increase. At the corporate level, Huayi Brothers has experienced several years of expansionary investment strategy, the superimposed film and television entertainment industry has experienced a series of norms and adjustments, and the company has faced short-term operational difficulties and adjustments, but whether it is the main business operation or financial situation, the company has shown marked improvement. The excellent performance of "eight hundred" has preliminarily verified our recommendation logic and continues to be optimistic about the accelerated recovery of the company's main business advantages. we expect the company's net profit from 2020 to 2022 to be 107 million / 464 million / 600 million yuan, to turn losses into profits in 2020, and to maintain a buying rating with a year-on-year growth rate of 335% and 29% respectively from 2021 to 2022.

Risk tips: the impact of the epidemic; film and television project production schedule is delayed, the film box office is not up to expectations; reality entertainment project operation effect is not as expected, new project expansion schedule uncertainty; brain drain and management risk; policy regulatory risk. The risk of operating cash flow and the risk that the financing progress is not up to expectation.